Overview
On 22 May 2024, UK Prime Minister Rishi Sunak announced that he had requested permission from King Charles III to dissolve parliament and call a general election. The election will take place on 4 July 2024. Opinion polls suggest the opposition Labour Party, led by Sir Keir Starmer, are on course for electoral victory. If that is the outcome, this means that in less than 3 weeks, the UK will have a Labour government for the first time since 2010.
The Labour Party is campaigning under the slogan “Change”. Its manifesto, published on 13 June 2024, sets out its policy commitments and intended legislative programme if it forms the next government.
So what does a potential Labour government mean for those with UK commercial interests? In this primer, we highlight key features of Labour’s manifesto for businesses. For more details, clients are welcome to contact the lawyers listed above or their usual contacts.
1. Tax
Labour’s Shadow Chancellor, Rachel Reeves, has confirmed that corporation tax would not be increased from its current 25% rate and that Labour would publish a roadmap for business taxation within one year of being elected.1
Labour has also confirmed that it has no plans to increase income tax or introduce a wealth tax. It does plan to raise tax revenues in a variety of ways, including (but not limited to) the following:
- Closing the “tax gap” – in other words, increase the amount of tax which is owed, but currently not collected, because of tax evasion, tax avoidance, failure in tax collection or because of mistakes made when tax returns are filed.2 They plan to take a number of steps to achieve this, including recruiting an additional 5000 HMRC compliance officers, focusing on offshore evasion and investing in digitisation.
- VAT on private school fees – as widely discussed in the press, Labour plans to introduce VAT on private school fees.
- Reform of “non-dom” rules – Labour plans to move ahead with the reform of the “non-dom” tax rules announced by the government on 6 March 2024. Labour plan to close remaining, further ‘loopholes’ in the non-dom tax rules if they are elected.
- Rules on carried interest – Labour plans to introduce rules to ensure that carried interest paid to private equity managers is taxed as income (as opposed to being taxed as capital at a lower rate). It is not yet clear precisely how that will work, or at what rate such income would be taxed.
- Energy Profits Levy – Labour proposes changes to the Energy Profits Levy (the oil and gas “windfall tax”) to help fund the so-called Green Prosperity Plan.
For further details, please contact James Hill.
2. Financial Services and regulation
Labour’s manifesto does not add much that is material to its January 2024 publication Financing Growth: Labour’s Plan for Financial Services, apart from stating in respect of Brexit that: “With Labour, Britain will stay outside of the EU. But to seize the opportunities ahead, we must make Brexit work. We will reset the relationship and seek to deepen ties with our European friends, neighbours and allies. That does not mean reopening the divisions of the past. There will be no return to the single market, the customs union, or freedom of movement. Instead, Labour will work to improve the UK’s trade and investment relationship with the EU, by tearing down unnecessary barriers to trade.” Otherwise, Labour’s six key policies for financial services and financial services regulation remain broadly as before, i.e. (as described by Labour in Financing Growth):
- Growing the UK’s financial services sector by scaling regional financial centres alongside established hubs in London and Edinburgh, and “unlocking the full potential” of the mutuals sector.
- Enhancing the international competitiveness of the UK’s financial services sector by pursuing “a more joined up and innovation-centred approach” to regulation and supervision, streamlining the regulatory rulebook in line with the Consumer Duty, strengthening international engagement in financial services, and building a more collaborative relationship with the EU.
- Reinforcing consumer protection and financial inclusion by “exploring alternative models for increasing financial resilience”, including longer-term fixed rate mortgages, adopting a “coordinated cross-sectoral approach” to fraud prevention, creating a “national financial inclusion strategy”, and regulating the Buy Now Pay Later sector.
- Leading the world in sustainable finance by making the UK a “global hub” for green finance activity, delivering a “world-leading green finance regulatory framework”, and “partnering with the financial services sector to support the decarbonisation of our homes”.
- Embracing innovation and fintech as the future of financial services by becoming a “global standard-setter” for the use of Artificial Intelligence in financial services, “delivering the next phase of Open Banking”, “defining a roadmap for Open Finance”, “embracing securities tokenisation and a central bank digital currency”, and “establishing a regulatory sandbox for financial products to reach underserved communities”.
- Reinvigorating capital markets by reviewing the pensions and retirement savings landscape, enabling greater consolidation of all types of schemes, “empowering the British Business Bank to invest more in growth capital”, establishing a British ‘Tibi’ scheme to “increase institutional investment in venture capital and small cap growth equity”, and “increasing investment in infrastructure and green industries through Solvency UK reforms”.
For further details, please contact Chris Chapman.
3. Competition
The Labour Party has promised to make the UK competition regime “fit for the modern economy, promoting innovation while protecting consumers“. A new Labour government would look to deliver on this pledge by overseeing significant reforms to the UK competition regime early in its term through the Digital Markets, Competition and Consumer Act (“DMCC“).
The DMCC was pushed through the last Parliament on an expedited basis with cross-party support immediately after the general election was called. Predicted to take effect in the autumn, the DMCC will introduce an entirely new regulatory regime in respect of digital markets. The Competition and Markets Authority (“CMA”), the UK competition authority, will gain bold new powers to intervene to protect competition and compel the largest digital players to observe new conduct rules. In its manifesto, Labour has declared its intention to introduce separate regulation targeting the development of Artificial Intelligence. Innovative technology markets are a key area of focus and priority.
In addition to sweeping new powers in relation to digital markets, the DMCC will confer on the CMA additional and substantially enhanced investigatory powers in relation to merger control and cartel investigations. Labour has sought to position itself as a “friend of business”. It will be interesting to see how its relationship with the CMA will develop as this non-ministerial government department exercises its enhanced portfolio of powers. In recent years, the CMA has boldly – and controversially – intervened in a number of high-profile matters, most notably Microsoft / Activision, and drawn criticism from the present Conservative administration as a result.
Further key areas to watch under a Labour government include relations with the EU and national security. The CMA has started to liaise with the European Commission and competition authorities in EU Member States with a view to securing a formal co-operation agreement. This would address legal and procedural impediments to cross-border collaboration arising since Brexit. Labour is looking to achieve closer alignment with the EU (see above) and this may provide added impetus to the CMA’s negotiations. On national security, Shadow Chancellor Reeves has declared that security lies at the heart of Labour’s economic mission. In this context, a Labour government is likely to revisit and may reform the national security screening rules established under the 2021 National Security and Investment Act. Foreign companies looking to invest in or acquire UK-domiciled businesses will need to monitor developments closely.
For further details, please contact Daniel Vowden, Mark Hills and Sarah Wilks.
4. Energy
Labour’s Green Prosperity Plan is focused on a central promise to deliver a cheaper, zero-carbon electricity system by 2030. To deliver on its objectives, Labour has set a series of targets for installed power capacity, sector-by-sector, such as 55GW for offshore wind, 50 GW for solar and 35 GW for onshore wind. While these targets are not substantially different from those set by the current government, there is an intention to overturn the current de facto ban on new onshore wind installations and an intention not to issue new exploration licences in the North Sea. Labour has also announced it will stay the course on current new-build nuclear projects and nuclear policy in general, as well as on the developing framework for government support in relation to CCUS, hydrogen and battery storage (again, slightly upping the targets).
Labour has also announced the intention to set up a new National Wealth Fund to invest in energy and infrastructure. This would essentially be an upgrade of the UK Infrastructure Bank and British Business Bank set up by the Conservative government, which have so far had limited impact due to a lack of funding.
Finally, Labour’s intends to establish Great British Energy, “a new, publicly-owned clean generation company, that will harness the power of Britain’s sun, wind, and waves to cut energy bills and deliver energy security for our country“. Many commentators are heralding it as the new state-champion of electricity generation. It appears Great British Energy will act as co-investor with the private sector in both established and new energy technologies, with the aim of accelerating clean energy rollout.
For further details, please contact Massimo Amoruso.
5. Workers’ rights
The Labour Party’s proposals on workers’ rights published on 24 May 2024 are described as its “Plan to Make Work Pay“. Despite some watering down from their original form, the changes are significant, with certain proposals promised to be delivered within 100 days of entering government. The most notable changes include:
- “Employee” and “worker” status – removing the distinction between “employee” and “worker” status and instead providing all working people (save for the genuinely self-employed) with full employment rights. This would include the right not to be unfairly dismissed.
- Unfair dismissal protection – making unfair dismissal protection a “day one” right and abolishing the current two year qualifying period. It will, it seems, remain possible to dismiss during a probationary period, where there is a fair and transparent process, and so it is more important than ever that employers review their contracts to ensure they have adequate probation clauses. (Labour previously indicated an intention to remove the current cap on compensation for unfair dismissal, making it an unlimited claim similar to whistleblowing and discrimination. Removal of the unfair dismissal cap does not, however, appear in the manifesto).
- National minimum wage – increasing national minimum wage rates so they reflect the national living wage, and extending the full rate of pay to all adult workers (i.e. removing the lower rate currently applicable to workers under the age of 21).
There are numerous other important proposals, including a ban on zero-hour contracts, repealing the various restrictions on trade union activities and strikes introduced by the Conservative government, and a new “right to disconnect”. If they are progressed, Labour’s proposed changes to worker rights will fundamentally alter the employment law landscape in the UK and they are clearly ones that employers should monitor closely.
For further details, please contact Chris Fisher and Ruth Neligan.
6. Immigration
Labour has stated that the aim of its business immigration policy is to reduce what it sees as business’ reliance on overseas workers, to address skills shortages and to ensure that hard work is rewarded with proper wages and conditions.
Labour has expressed support for a points-based immigration system that works for workers and businesses, which suggests it does not intend to make major structural changes to the current system. Instead Labour intends to focus on upskilling the local labour force by requiring government departments to introduce new training plans and requirements for key occupations. It will also look to reform the apprenticeship levy to support the upskilling and skilling of resident workers so that they are able to fill vacancies in key shortage areas, including construction, IT and engineering, which are currently being filled by overseas workers.
On the compliance side, Labour has stated that it wants to limit access to the immigration system for employers who fail to provide fair pay for fair work. It will also introduce stronger immigration penalties for those found guilty of flouting labour and minimum wage laws.
Overall, Labour’s plan appears to be to cut the level of net migration by reducing the need for employers to hire overseas workers by upskilling resident workers, rather than making it more difficult for employers to sponsor migrant workers. The current government has only recently introduced a significant increase to the minimum salaries that overseas workers who are sponsored by employers to work in the UK must be paid, and it looks like a Labour government would want to see what effect that has on the net migration figures before deciding whether any further changes to the immigration system are required.
For further details, please contact James Perrott.
7. Housing and Planning
The Labour Party’s proposals in respect of housing and planning include:
- Provision of new homes – committing to build 1.5 million new homes over the life-time of the next Parliament. This includes a promise to deliver the biggest increase in social and affordable housebuilding in a generation, in part by strengthening planning obligations with new builds. Labour also wants to ensure that local homes go to local people by preventing off plan sales to international buyers, and also promises a permanent, comprehensive mortgage guarantee scheme, to support first-time buyers who cannot afford hefty deposits. Labour will prioritise building on brownfield sites, and is committed to preserving the Green Belt, although it concedes that it may be prepared to release ‘grey belt’ land within the Green Belt, where necessary. Labour also plan to build new towns alongside urban extensions and regeneration projects. At the same time, the manifesto promises to implement solutions to unlock the building of homes affected by nutrient neutrality without weakening environmental protections. However, there is no detail as to how this will be achieved.
- Planning – Labour has committed to updating the National Policy Planning Framework immediately. Mandatory housing targets will be reinstated. Local authorities will be provided with funding for additional planning officers, paid for through increasing the rate of the stamp duty surcharge paid by non-UK residents.
- Private Rental Sector – Labour promises immediately to abolish the operation of section 21, which enables so-called “no fault eviction”. It also undertakes to “prevent private renters being exploited and discriminated against”, but gives no detail, apart from saying that it will enable them to challenge unreasonable rent increases, beyond the protection already afforded in the Housing Act 1988. In addition, landlord’s repairing obligations will be increased as it commits to extending “Awaab’s Law” to the private sector. This mandates landlords to investigate and fix reported health hazards within specified timeframes, even if this necessitates remedying structural defects.
- Leasehold Reform and Building Safety – Labour’s manifesto commits to “finally bringing the [residential] feudal leasehold system to an end“, which is something that the Conservatives had tried to do, but had been unable to secure sufficient support of their own back benchers. Labour has said it will enact all the recommendations of the Law Commission in their several reports on leasehold enfranchisement, right to manage and commonhold. Commonhold is set to become the default tenure. Additionally, home-owners will be given new protections from rent charges and Labour has committed to enhancing protection of leaseholders in high rise buildings.
- Business Rates – In England, Labour promises to replace the business rates system. It will raise the same revenue but by “leveling the playing field between the high street and online giants’.
For further details, please contact Chris Harvey and Gillian Palmer.
8. Construction / Infrastructure
Labour’s green agenda to achieve net zero emissions and produce clean power by 2030 brings with it a potentially significant impact to the construction industry. This shift can expect to increase the likelihood of disputes relating to compliance with new environmental regulations, contractual obligations for sustainability, and potential delays or cost overruns on green construction projects. The expansion of renewable energy infrastructure and the establishment of Great British Energy (see above) may help drive these changes, potentially leading to an uptick in disputes concerning public sector contracts and regulatory compliance.
Labour’s push for energy independence, supported by the National Wealth Fund (see above) and the proposed Energy Independence Act, may help drive the development of domestic renewable energy projects, including offshore/onshore wind, solar farms, marine energy, and energy storage solutions. This increased activity, while offering multiple avenues for investment into the UK, may lead to a new range of project disputes due to the inherent scale and complexity of these developments. Additionally, Labour’s commitment to carbon capture and storage, nuclear power and hydrogen production will further contribute to investment potential and the potential for disputes, particularly around safety standards, technological reforms, and regulatory compliance.
Businesses will need to stay up-to-date with what will be a dynamic regulatory environment. By investing in training and development, businesses can enhance their overall understanding of green construction practices and sustainable technologies, allowing them to stay ahead of the market and avoid disputes in future.
For further details, please contact Jonathan Stone.
9. Corporate affairs / Anti-corruption / financial crime
Labour has stated it will introduce a new fraud strategy and will appoint a fixed-term Covid Corruption Commissioner to seek to recover public money lost in pandemic-related fraud. It is likely that a Labour government would also continue to build upon and utilise the legislative changes introduced by the Economic Crime and Corporate Transparency Act 2023, and the new “failure to prevent fraud” offence in particular. Businesses should pay particular attention to the “failure to prevent fraud” offence given that its territorial application puts ostensibly non-UK businesses and non-UK business activity in scope.
A speech by the Shadow Foreign Secretary David Lammy on 21 May 2024 set out the strongest indication yet of what is likely to be the policy priorities for Labour in respect of financial crime and anti-corruption agenda. Mr Lammy highlighted two areas of policy focus that are likely to be of particular interest to companies with operations or business interests in the UK: i) whistleblowing rewards, and ii) possible amendments to registration and transparency requirements for UK entities.
- Whistleblowing – historically, Britain has not offered rewards to whistleblowers unlike the US save for in limited circumstances in tax-related investigations. However, Mr Lammy’s speech made it clear that Labour intends to incentivise whistleblowers with up to 25 percent of any fines handed down by the sanctions regulator, the Office of Financial Sanctions Implementation (OFSI). Whilst these public statements relate to the sanctions sphere only, the Serious Fraud Office (SFO) has also made statements recently indicating that it would like to reconsider the introduction of whistleblowing rewards. This would presumably extend to a range of economic crimes. The public statements made to date and the general UK enforcement climate make it unlikely that the whistleblowing incentives offered in the UK will come close to matching the large sums offered to such whistleblowers in the US. However, the very fact of their introduction would likely increase the frequency of UK-related whistleblowing cases.
- UK company registration and transparency – Britain has made significant amendments to corporate registration transparency requirements in the past decade, including through the introduction of mandated beneficial ownership information and, more recently, significant changes to the requirements for the reporting of foreign ownership of land via the Economic Crime (Transparency and Enforcement) Act 2022. Mr Lammy’s speech also highlighted the role of UK trusts in global illicit activity, and suggested that Labour would seek to widen the registration requirements for UK trusts in the UK mainland as well as UK crown dependencies and overseas territories and thus further restrict the use of such corporate vehicles for flows of illicit funds. UK crown dependency and overseas territory cooperation and harmonisation in respect of company registration requirements has been complicated in the recent past by the latter’s reluctance to overhaul the very corporate eco-system on which such offshore centres rely. However, global consensus on corporate transparency appears to be shifting and progress has been made in relation to anti-money laundering and similar regulations in the overseas territories in particular. Companies should expect opaque corporate structures, particularly those based in offshore jurisdictions, to come under increasing scrutiny from government, inter-governmental entities like FATF, and from customers and clients alike as global legislation in this area continues to develop.
Labour has also proposed expanding deferred prosecution agreements to individuals, not just corporates, albeit only for tax evasion offences, as well as changes to disclosure rules in criminal procedure to reflect the increase in data since the rules were introduced.
For further details, please contact Sam Eastwood, Chris Roberts and Findley Penn-Hughes.
All change?
Of course, the extent of legislative change will much depend on the size of the majority obtained by the “winning” party, and whether they would need to form a cross-party coalition, which may dampen legislative intent.
Further, although the Labour Party is campaigning on a platform of “Change”, it is worth noting that there is likely to be continuity in certain important policy areas:
- There will be no reversal of Brexit. As noted above, Labour is likely to seek a greater degree of co-operation with the EU than the more Eurosceptic Conservatives (although Mr Sunak has also been pragmatic in his dealings with the EU, for example in relation to the Northern Ireland Protocol in 2023).
- Monetary policy is set by an independent Bank of England, not the government of the day. A new government is unlikely to influence the Bank of England’s continuing efforts to reduce inflation to its 2% target, or the timing of a decision to move interest rates. At least in the short term, this may help shelter the value of sterling from the election result.
- Labour has also promised no rises in income tax or national insurance (see above).
In addition, the UK civil service is neutral and will continue to administer government business, whichever party succeeds at the polls.
“Wash up Period”
The “wash-up” period between when Parliament was prorogued on 24 May and dissolved on 30 May 2024 saw a last-minute rush to push through remaining bills into law. Several bills that disputes lawyers were tracking did not make the cut. In particular, the new Arbitration Bill, which had cross party support and aims to modernise the law on arbitration to ensure that London remains one of the world’s most popular arbitral seats, did not make it through. Also the Litigation Funding Agreements (Enforceability) Bill did not pass meaning the enforceability of certain litigation funding agreements remains in doubt. However, the statutory instrument introducing the Hague 2019 Convention on the Enforcement of Judgments in commercial matters did make it onto the statute book. This is good news for businesses operating on a cross border basis that select the English courts to resolve their disputes, as the UK is a step further forward to ratifying this treaty.
Election finance rules
Businesses looking to engage with the UK general election, or support a political party or candidate, will need to ensure that they comply with the UK’s strict rules on election finance. Generally, campaign spending and donations are only allowed from those within the UK (i.e. individuals on the UK electoral register, or UK registered companies/partnerships carrying on business in the UK).
Any business or individual incurring over £20,000 on campaign spending (falling within the definition of “controlled expenditure”) in England during the one year period before an election (known as the “regulated period”) is required to notify the Electoral Commission as a “recognised third party”. Once notification is given the business or individual needs to abide by the Electoral Commission’s guidance, rules and reporting requirements, with certain information reported to the Electoral Commission being made public. Incurring “controlled expenditure” in excess of the specified limit without notifying is a criminal offence, and the Electoral Commission has the power to impose fines.3
There are also limits on donations that can be given to political parties and individual candidates. Donations over certain values need to be reported to the Electoral Commission, with the donor’s name being made public.4
There are also restrictions in the Companies Act 2006 that require UK Companies to obtain prior shareholder approval before making political donations or incurring political expenditure. Such donations and expenditure also need to be recorded in the directors’ report.5
Closing remarks
The new Parliament will meet on Tuesday 9 July 2024, which will see MPs take the oath and the House of Commons elect a Speaker. The State Opening of Parliament and a King’s Speech setting out the new government’s legislative programme for the new Parliament is expected to follow on Wednesday 17 July 2024. Businesses with UK interests will be watching closely.
For more information, please contact Sarah Garvey and Craig Holburd.
