Labour in power: should you change your investment portfolio?

Since May, investors have been bombarded by contradictory messages from the different political parties. And although a new government doesn't mean certainty, you can at least start planning for the future.

The results are in and Labour is back in power, for the first time in 14 years.

Previous elections suggest stock markets welcome change – according to investment platform AJ Bell, on average the FTSE All-Share recorded a double-digit percentage gain in the first year after an election which saw a government change. 

But there’s no guarantee that the rising Labour tide will lift all boats. 

As new ministers take their posts, canny investors will be examining how their portfolios align with Labour’s policies.

Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice. If you're new to investing, we recommend starting with our beginner's guide. 

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Investments and tax

Before looking at opportunities, consider the threats. 

The new Chancellor, Rachel Reeves, has previously stated Labour has ‘no plans’ to increase capital gains tax (CGT), but this is not the same as ruling it out.

One possibly change they could make is to bring CGT rates in line with income tax rates. This would see CGT on non-property sales rise from 10% to 20% for basic rate taxpayers, and from 20% to 40% for higher rate taxpayers. 

Money invested through a stocks and shares Isa or self-invested pension plan (Sipp) will be shielded from any such move. 

Isas were not mentioned in the Labour manifesto, and most experts agree it would be a very brave politician who would attempt to restrict Isa savings.

• Find out more: what the new Labour government means for your money

Windfalls and windfarms

Prime Minister Keir Starmer has pledged to extend the windfall tax on oil and gas companies, raise the rate of the levy, and close existing loopholes. This has drawn criticism from some in the fossil fuel industry, who have argued it will damage investment and could hurt the profitability of projects. 

But as the windfall tax only applies to UK oil and gas, its impact on the big names in your portfolio might be less than you’d expect.

‘This is likely to negatively impact the smaller operators in the industry more than oil giants like BP and Shell who are less exposed to the North Sea basin,’ says Victoria Scholar, head of investment at investment platform Interactive Investor. 

Conversely, Labour is planning to roll out GB Energy – a publicly-owned investment company which aims to partner with industry and trade unions to deliver clean power. This forms part of their strategy to double onshore wind, triple solar power, and quadruple offshore wind by 2030.

‘Labour’s goal to boost investment in the green economy could put the spotlight on specialists listed in the UK, including Costain which advises on energy transition work, and environmental services group Ricardo,’ says Dan Coatsworth, investment analyst at AJ Bell.

• Find out more: Investment funds explained 

New and improved homes

Angela Rayner will be responsible for fulfilling Labour’s stated aim of building 1.5 million homes over the next five years, in her role as Secretary of State for Levelling Up, Housing and Communities. 

This includes releasing parts of the green belt for development. In addition, the party has pledged £6.6bn towards upgrading the energy efficiency of existing homes.

Together this implies a boost for construction workers, engineers and electricians, among others.

‘This would likely provide a boost to housebuilder stocks as well as construction businesses and DIY firms’, notes Victoria. B&Q and Screwfix are owned by international firm Kingfisher, while Wickes is also publicly traded.

'Construction firms Morgan Sindall Group and Kier Group provide services to the property sector and could be rubbing their hands with glee at the prospect of a Labour government,’ suggests AJ Bell's Dan.

• Find out more: How to buy shares 

Defence & health spending

Starmer was keen to talk up Labour’s national security plans during the election campaign, pledging to increase defence spending to 2.5% of GDP, from around 2.28% in 2023, ‘as soon as resources allow’.

This has triggered a cautious response from some experts. 

‘There is a risk this target could remain in limbo,’ warns AJ Bell's Dan. ‘What’s clear is that the party wants to prioritise British companies for defence work.’

Interactive Investor's Victoria on the other hand points out that defence stocks have had an impressive run lately – ‘BAE Systems on the FTSE 100 is up nearly 50% over the past year and has been in a long-term uptrend over the past five years. Labour has made it clear that it plans to support the defence sector’.

Labour’s Wes Streeting is now responsible for overseeing the UK’s £182bn annual healthcare budget. The ambitious new Health Secretary has promised an expanded role for private healthcare within the NHS, creating an opportunity for private investment.

‘There’s likely to be increased demand from the government for companies offering technological solutions, such as diagnoses with the help of AI, as well as for surgeries in private clinics,’ says Victoria.

5 tips for investing - whatever happens over the next five years

1. Don't make any rash moves. Stock market movements in the immediate aftermath of a new government are not a reliable way to predict the future.
2. Invest within a stocks and shares Isa. New Isa rules mean it’s now possible to pay into two or more stocks and shares Isas in the same year.
3. If investing for retirement, consider a self-invested personal pension (Sipp), which also protects dividends and gains from tax, plus you get tax relief
4. Diversifying your portfolio over several countries will reduce the impact of a sharply negative reaction to future government policies. A number of FTSE 100 firms make most of their profits from overseas activity and may be less exposed to local changes.
5. If investing in an unfamiliar industry or region, consider a fund or trust with a good track record rather than picking shares yourself, as you’ll get the manager’s expertise.