New Labour government faces same fiscal challenges

5 July 2024

A new Labour government brings 14 years of Conservative rule to an end, promising that it will prioritise public services and bring ‘no return to austerity’, while sticking to tight fiscal rules and freezing many taxes. But how will this circle be squared?

Oliver Jones, Head of Asset Allocation

Article last updated 25 November 2025.

Incoming Chancellor Rachel Reeves has pledged to abide by the same key fiscal rule as her predecessor, while inheriting spending plans that contain significant cuts to important departments.

One way to avoid these cuts would be to raise taxes that weren’t explicitly ‘frozen’ in Labour’s manifesto – the biggest potential revenue raisers in this category being taxes on capital gains and inheritance. Another possibility is to find flexibility in the fiscal rules – borrowing a bit more while sticking to the letter of the rules. The key question with the latter is how the government bond market would react.

What about the stock market? With the radical pledges of the Corbyn era mostly long gone, there’s not too much for companies to fear from Labour’s agenda. But there are some risks in areas where the party’s manifesto was vague, like the extent of minimum wage increases. Otherwise, it’s possible that political stability could be a good thing for investment in the UK in general, supported by proposed reforms to the planning and pension systems.

You can read more about what could be on the horizon for the UK’s new government, and what it all could mean for your investments, in our special election edition of Investment Insights.

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