Author Archives: GK Strategy

Barriers to the Reform-quake

GK’s James Allan assesses some of the barriers of populism in British politics and explains why the political hype about Reform UK might be overstated

‘Campaigning is different than governing’ – so said President Obama to reporters on Air Force One in a targeted message to Republicans looking to gridlock his legislative agenda on Capitol Hill. The same goes for any political organisation that looks to exploit grievances and stir up public anger to secure votes and electoral support. It was a dynamic at play in the 2016 Brexit referendum and Reform UK is reviving the grievance playbook in the lead up to the next election.

How the Labour government, and the Conservative Party in opposition, respond and deal with the challenge posed by Reform UK is undoubtedly shaping the course of this parliament. The government published its immigration white paper only moments after the local election result and the so-called ‘Reform-quake’ that saw 677 Reform councillors elected. As noted in last month’s newsletter, the government’s political objectives were clear: to appear tough on immigration, shatter the public perception of Labour being pro-asylum and pro-migration, and outflank Kemi Badenoch and Nigel Farage.

With all the subsequent political and media crystal ball gazing about the future of Reform UK, it is unsurprising that investors and businesses are curious. Importantly, the next election is likely to take place in the second half of 2028 or at some point in 2029. It is too early to predict the outcome meaning current polling warrants cautious interpretation. Amid the uncertainty, it is worth stepping back to consider why the political hype about Reform UK may be premature.

Four reasons why the Reform panic is overblown

1. The UK is bucking the global populist trend

The year 2024 was mega for elections across the globe. It was a year that largely saw incumbents punished for achieving marginal levels of economic growth, governing during a global health pandemic, and a cost-of-living crisis. This created opportunities for the ring-wing populist parties that sought to challenge to status quo, capitalise on grievances and promise radical change without providing credible plans for doing so. However, unlike most swings experienced in other western developed democracies, the UK swung to the left. The election of a Labour government brought an end to 14 years of Conservative governments.

The UK’s anti-incumbent sentiment at the election meant that one in four Conservative voters in 2019 went to Reform UK and one in five went to the Labour Party. This indicates a more fragmented split in the national vote and the UK’s first past the post electoral system means that Labour’s majority should be understood as broad but thin. It reflects a characteristic of our electoral and constitutional DNA that makes it harder for third, fourth and fifth political parties to perform well and win seats at general elections, including a right-wing populist challenger party. The bar is therefore high for Reform UK. It would need to overcome this fragmentation and more comprehensively supplant the Conservative Party to succeed.

2. No party has ever lost a 174-seat majority in modern British political history

Starmer’s majority is the third largest landslide win since the turn of the 20th century. From 1945 onwards, history would suggest that majorities such as this typically endure at least one more election before the colour of government changes. Labour’s majority of 145 in 1945 survived one other election before being unseated and its majority of 179 seats in 1997 endured for two more elections. The Conservative majority of 144 in 1983 also endured for two more elections and was whittled down to a majority of 21 before the party was catapulted out of power.

Historical precedents should be taken with a pinch of salt. The third-party challenger in all these elections were typically the Liberal Democrats (or its predecessors). A more fragmented electorate and Reform UK could challenge this historical precedent but even its predecessor UKIP never won any seats in the House of Commons at its peak in 2015 despite holding a number of seats in the European Parliament elected under a proportional representative system. This further underscores the difficulty these challenger parties face.

3. Grievance politics only gets you so far

Reform UK’s playbook of grievances is blunt and polarising: immigration and borders; issues of national identity and community cohesion; taking on establishment orthodoxy and perceived elite indifference; and underscoring the cost of net zero policies. Playing on grievances can mobilise discontent, and without credible solutions, Reform UK will struggle to translate its momentum into enduring political support.

The coming years will be a test of Reform UK’s operational effectiveness, party discipline and credibility in local government. Its success at the May local elections is significant. It won 677 council seats out of roughly 1,600, took control of ten local authorities and successfully elected two mayors. But beyond the grievances espoused by its candidates, Reform UK’s credibility is now at stake and already showing early signs of dysfunction. For instance, Reform UK-controlled Kent County Council recently suspended a councillor and nine of the 22 council meetings have been cancelled within the first nine weeks of them gaining control. These are meetings where important decisions, such as budget allocations and service provisions were expected to be made.

Local government plays a vital role in the operational delivery of frontline local public services that most of the electorate use and engage with. From adult social care and children’s services, to bin collection and public protection, a lot is at stake for Reform controlled local authorities. Political leaders in Westminster will be watching closely to exploit any opportunity to batter Reform’s credibility. Added to this is immense pressure on local government finances, meaning that any misstep will be amplified. Reform UK not only has to prove it can win votes but also that it can govern responsibly under intense scrutiny and fiscal constraint.

4. Expect mid-term blues

It is reasonable for voters to flirt with protest parties between general elections and Reform UK is likely to maintain its momentum in local elections over the course of this parliament. Local elections offer a safe outlet for public frustration, but general elections are different. Not only will voters who are less politically engaged (or enraged) turn out to vote in a general election, but the national conversation will shift from registering voter discontent to who can govern the country effectively. It was a dynamic in 2024 and a key part of Starmer’s pitch to voters, citing his record of restoring Labour’s credibility from the Corbyn era of Labour leadership and criticising the Conservative’s mismanagement of the economy.

While Reform UK may have reshaped the political conversation, structural barriers and historical precedents mean that translating this discontent into enduring electoral support that can survive the test of a general election will be a significant challenge for the populist right-wing party.

Push to raise foreign taxes on US assets a risk for foreign investors

By Lizzie Wills, Senior Partner & Head of Private Equity

A bill making its way through the US Congress could present meaningful new taxes on US holdings of investors domiciled in the UK, as well as several EU member countries – another in a series of new risks to emerge from the newly fraught relationship between America and its historic allies. While passage of the bill is not guaranteed, potentially impacted parties should begin to think now about how to react to potential changes.

The effort in the US Congress to impose new taxes on many foreign investments in the US is part of a broader tax and spending package that recently passed the US House of Representatives and is currently being debated in the Senate. The bill would be passed under a legislative vehicle known as reconciliation, which allows a bill to pass under restricted circumstances with simple majorities of both the House and Senate, circumventing the usual requirement to secure 60 Senate votes.

The foreign investment tax package is known as Section 899 for the new section of the US tax code required to implement it. Section 899 would impose incremental taxes above current rates on the value of income or sale proceeds of many US holdings (US Treasury securities would be exempt) held by institutional investors, individuals and governments domiciled in countries that have imposed what the bill characterises as “discriminatory” taxes on the US. The discriminatory threshold would automatically include countries that have levied Digital Service Taxes (DSTs) on US-based technology firms – which includes the UK, France and Spain – as well as taxes imposed under the Undertaxed Profits Rule, a standard developed by the Organisation for Economic Co-operation and Development (OECD) to attempt to impose minimum tax rates on multinationals.

Since the House version of the reconciliation bill passed on 22 May 22, critics have dubbed Section 899 the “revenge tax”, predicting that if passed the provisions would hurt US asset prices, cause interest rates to rise and the US dollar to tank considering the US$30 trillion in US assets held by foreigners. The Tax Foundation, a US think tank, estimates the new taxes would impact some 80% of the foreign direct investments into the US. Yet US policymakers appear to be largely unmoved thus far by the opposition. The Senate Finance Committee has released draft language pegging the incremental taxes at 15% (5% per year for each of three years) starting in 2027, watering down the House version but keeping it largely intact. The notion of raising taxes on foreign investors is completely consistent with the “America First” mindset of the Trump administration and Republican congressional leaders. The Congressional Budget Office (CBO), a non-partisan body that estimates the fiscal impact of proposed legislation, has forecast that the House version of Section 899 would raise US$116 billion over the 10-year budget forecast window, important considering the CBO’s forecast that the bill would add trillions to the already yawning US budget deficit. The Senate’s version of the bill would raise less, given the 15% maximum (versus 20% in the House bill) but would still be expected to generate meaningful revenue.

The broader reconciliation bill has drawn opposition from multiple factions of the Republican party. However, the bulk of the criticism has focused more on the bill’s proposed cuts to the Medicaid health-insurance programme (for moderates) and the projected further widening of the federal budget deficit (for conservatives). By comparison, criticism of Section 899 has been muted. And even if the current version of the bill is scaled back, the temptation for a party that controls the White House, Senate and House to pass a bill through reconciliation is huge – the vehicle was used to pass the tax-reform bill in Trump’s first term, in 2017, as well as the Inflation Reduction Act (IRA) under President Joe Biden in 2021.

Sample countries that have imposed Digital Service Taxes (DSTs) on US Firms

Austria Denmark Belgium
Canada Hungary Turkey
France Italy Peru
India Poland Colombia
UK Spain Kenya

Source: Tax Foundation

What can non-US investors with US holdings do in response? Both the Senate and House versions of the bill specify that the new taxes will only be imposed on entities with greater than 50% equity ownership outside the US. Jointly held funds with divided US/non US ownership could shift majority control back to the US partner. Other strategies will surely emerge to adapt to the new rules should they come to pass. But investors would do well to start thinking about them sooner rather than later.

If you’re interested in discussing this in more detail please be in touch with Lizzie Wills on lizzie.wills@gkstrategy.com.

Key Takeaways from the Spending Review: A future that is less generous than the past

GK had the pleasure of hosting former Treasury and education minister David Laws and the Financial Times’ Economics Commentator Chris Giles in our latest webinar on Thursday (12th June) to discuss the winners and losers from the government’s spending review, and what it means for business.

The spending review is a significant moment in the political calendar. The settlements it confirms set departmental day-to-day budgets for the next three years (2026-27, 2027-28 and 2028-29) and capital expenditure for the next four (until 2029-30). It is also the moment when No.10 and the Treasury must publicly commit the funds to support their political objectives – in essence, we get to see where spending is going to be prioritised and where it is not.

In the webinar, David and Chris detailed what the spending review means for overall public spending, where the government could come undone, and the possibility of future tax rises. You can read a summary of their key takeaways below:

The spending review is not about making new money available or introducing new taxes. Spending reviews are all about the allocation of a pre-determined spending envelope which, in this instance, the Chancellor set out in the October budget last year. It does not introduce any new taxes or make new money available. Instead, it confirms what areas of public spending the government wants to prioritise, and which departments will have to be squeezed.

The departmental settlements do not represent a return to the austerity years. While the overall spending envelope is tight – especially given growing pressure on public spending across health, pensions and defence – day-to-day spending is still rising by 1.2% per year in real terms (i.e. accounting for inflation) over the spending review period. This means it is broadly in line with the departmental spending settlements put forward by various governments since 2019.

A lot of the spending assumptions depend on public sector productivity improving, which is no guarantee. Public sector productivity has declined since the Covid-19 pandemic and in 2024 it fell by 0.3%. The Office for Budget Responsibility (OBR) has historically assumed quite generous improvements in public sector productivity each year which is a key component of its overall economic growth metric.

If the OBR significantly revises down its assumptions about improvements in productivity, this could seriously impact the funds it is projecting the government will have to work with over the spending review period. This increases the likelihood of the government having to do introduce large tax rises at the autumn budget.

Defence will continue to put pressure on the government’s overall spending envelope. Since the end of the Second World War, successive governments have used cuts to defence as a means of boosting other areas of public spending, most notably health. Persistent global instability and geopolitical uncertainty means that higher levels of defence spending are likely to continue for the foreseeable future. No.10 and the Treasury will have to contend with this new spending pressure as demographic challenges continue to pile up and economic growth remains sluggish.

The NHS is the big winner from the spending review, albeit with a smaller settlement than it has historically received. Health secretary Wes Streeting will undoubtedly be the happiest around the Cabinet table following the confirmation of the Department of Health and Social Care’s settlement, with spending on the NHS set to grow by 3% per year in real terms. However, this is below historic average rises of approximately 4-5%. With a growing elderly population and people living with complex conditions for longer, the funding put forward in the spending review settlement is unlikely to significantly move the dial on the performance of the NHS.

Small tax rises are likely at the autumn budget to meet the Chancellor’s fiscal rules. The government has committed to meet day-to-day expenditure through its own revenues by 2029-30. This means its current budget will have to be in balance or surplus by the end of the decade, and any money the government does borrow will be to invest. If the OBR projects that the government is not on course to meet this fiscal rule (or any of its others), then Chancellor Rachel Reeves will be forced to come back for a second round of tax rises or decide to break a fiscal rule. Either look fairly unpalatable to the government given where they currently are in the opinion polls.

A cabinet reshuffle should be expected in the second half of 2026 as the government begins to ramp up to the next general election. 2026 is projected to a big election year in the UK. Elections are due to take place for the Scottish Parliament and Welsh Assembly, along with a series of newly created unitary authorities. Should the results prove poor for Labour, as current polling indicates they will, then Prime Minister Keir Starmer is likely to reshuffle his cabinet to get his top team in place as the No.10 machine starts to think about the next general election in 2029.

Health and welfare reform – will work, work?

The government has made its stance on health and welfare clear. The overarching narrative underpinning the Department for Work and Pensions’ (DWP’s) green paper on welfare reform, published in March 2025, is ‘good work is good for health and being out of work can worsen health’.

Coupled with the Secretary of State for Health and Social Care Wes Streeting’s recent comments that an over-diagnosis of mental health conditions is preventing people from working, it is evident that the government sees work as a key component of the welfare state.

This marks a distinct shift in how work, health and welfare have historically interacted in policymaking. Where once the welfare system was seen primarily as a safety net, it is now being recast as a springboard that supports individuals back into the labour market.

The government recognises that something has shifted in the labour market post-Covid-19. There has been a 45% increase in health-related benefits claimants since 2019-20 and more than 9.3 million people out of work. There are swathes of statistics which demonstrate that Britain’s workforce has not fully recovered from the pandemic and the current level of sickness and absenteeism is unsustainable.

Given the scale of the issue, the government has sought to identify how improving health outcomes might support people into work and enable them to stay there. Ideas such as offering weight loss jabs, dubbed ’jabs for jobs’, were floated at the end of last year. This gives a clear signal that the government is keen to encourage people back into the workplace and is open to non-conventional methods of doing so.

While DWP consults industry and businesses on its planned welfare reforms, an opportunity has arisen for those focused on supporting the government’s vision for work and welfare. Employers should be prepared to play a larger role in supporting the workforce to remain engaged in the labour market. This offers significant opportunities for occupational health providers who can support employers to promote the health and wellbeing of their staff.

Schemes such as mental health and wellbeing programmes will become increasingly common in employment offerings as businesses take on a growing role in a broader, work-led approach to welfare. Occupational health providers who can help fill this gap between welfare, health and long-term employment are well placed to help facilitate the government’s policy objectives.

Reducing economic inactivity is a key priority for the government in its mission to kickstart growth. By implementing supportive workplace schemes and collaborating with private occupational health providers, employers can not only improve individual outcomes but also contribute to broader societal and economic resilience.

The question now for policymakers is exactly how occupational health providers can support businesses to deliver on the government’s objectives for welfare reform. Ministers, civil servants and parliamentarians are keen to understand the art of the possible and how they can work with providers to support workers to remain as active participants in the UK’s workforce.

Please contact Lauren Atkins (lauren.atkins@gkstrategy.com) if you would like to discuss occupational health and the government’s welfare reforms in more detail.

To go boldly: UK Strategic Defence Review 2025

The UK Government has now published its long-awaited Strategic Defence Review (SDR). Speaking at a BAE Systems shipyard on the Clyde, the Prime Minister said the UK military is moving to ‘war-fighting readiness’ and, in step with the wider growth agenda, Sir Keir emphasised a role for the whole country in this new defence enterprise.

This review differs significantly from previous strategic defence (and security) reviews, and its output will be followed closely by allied capitals. It has the potential to be a transformational blueprint, with offensive cyber, technology and autonomy at its centre, to face the ‘new era of threat’.

The SDR was led by the respected former Labour Secretary of State for Defence and past NATO chief Lord Robertson, with an extended external team including Dr Fiona Hill and General Sir Richard Barrons. Commissioned soon after Labour returned to government in July last year, it is the UK’s first externally led defence review. Its aim is to make a forward-looking assessment of the UK’s strategic defence interests and outline the corresponding military requirements. This is no easy ask in such a fast-changing world, which is in part why we also see the early confirmation of big-ticket commitments, including new hunter-killer submarines, a £15 billion nuclear warhead programme to equip the bomber boats, and new long-range weapons.

In the strategic context, the review is clear that both Russia and China are big state threats. It also highlights the growing role the digital world will play in the global defence and security landscape, and the review is the first of its type to put a significant focus on cyber capabilities.

The balance here is between resource and the review’s four lenses: NATO-first; global responsibilities; homeland defence; and hybrid grey-zone activity such as cyber-attacks. Artificial intelligence and drones are transforming modern warfare, so the government has committed to set up a new cyber command with a £1 billion package of investment. There is also good news for MBDA and BAE who will be in line for the new ‘defence factories’ as the UK gets serious about munition supplies, with a £1.5 billion commitment to establish at least six munitions’ facilities.

The Ministry of Defence is still experiencing challenges to frontline budgets and decisions in the government’s upcoming spending review, due to be announced on Wednesday 11 June, will demonstrate No.10 and No.11’s seriousness about putting the SDR’s findings into action.

Friends and adversaries alike will keep a close eye on whether this latest SDR will deliver for UK defence. In the near term, all of us involved in defence and security await the publication of the government’s industrial strategy, expected alongside next week’s spending review, and the many opportunities it will bring to engage with government in the weeks and months ahead.