Author Archives: GK Strategy

GK Strategy Briefing – October 2024 Budget

GK Strategy Pre-Budget Briefing: GK Associate Hugo Tuckett takes a look at what we’re expecting to see in the government’s first Budget on Wednesday 30 October

Political Context

The government will hold its first budget on Wednesday 30 October. Ministers will want to use it as an opportunity to reset the political agenda given the turbulence of recent weeks which has seen the Prime Minister lose his Chief of Staff Sue Gray and pay back more than £6,000 in gifts after a row over donations.

Labour’s election manifesto was light on tax and spend measures. The Party identified four revenue raising levers to utilise to fund its reforms to public services. These are: further reforming non-dom tax loopholes, applying VAT and business rates to independent schools, ending the carried interest tax loophole and increasing stamp duty on purchases of residential property by non-UK residents. The Party estimated this would raise just over £7 billion in additional revenue for the exchequer.¹ The manifesto also included a commitment not to increase national insurance, the basic, higher or additional rates of income tax, or VAT. Given these represent approximately two-thirds of tax revenue, this forces the Chancellor to focus on maximising returns from a series of smaller pots to fund Labour’s spending priorities.

In July 2024, the Treasury completed an audit of public spending which identified a £22 billion black hole in the public finances. The government said this represents an in-year overspend and does not constitute an estimate of how much additional funding might be allocated to departments moving forward or how much additional borrowing may be required.² The Chancellor will therefore have to pursue a series of tax rises to close this gap in the public finances and support additional investment in departments moving forward.

Potential Measures

The following list sets out a series of measures that GK has assessed are likely to be included in the upcoming budget:

Employer pension contributions: The pushback the Chancellor received following her decision to end winter fuel payments for pensioners not in receipt of pension credit (which cut the relatively small amount of c.£1.5 billion from the government’s annual welfare bill) reduces the likelihood of her pursuing a large number of small tax rises to balance the books. Instead, the government is likely to target 3-5 measures which collectively bridge the gap in the public finances. GK’s assessment is that the Chancellor is likely to reform the NICs treatment of employer pension contributions by levying employer NICs on employer pension contributions. If levied at the full rate (13.8%), this would raise around £17 billion per year. This covers approximately three-quarters of the £22 billion figure identified in the Treasury’s audit of public spending and would end what the Institute for Fiscal Studies (IFS) describes as “the generous NICs treatment of employer pension contributions… [which are] opaque and poorly targeted.”³

Inheritance tax: The government is likely to close several loopholes in the inheritance tax system. Politically, Labour is not as sensitive about reforming inheritance tax as previous Conservative administrations. This provides the Chancellor with a freer hand to make changes without encountering pressure from her Party’s backbenchers. Reforms to the inheritance tax system are likely to include ending reliefs for business assets (including those held in the AIM market), agricultural property, and gifts to charities. This is estimated to raise c.£2.4 billion in revenue.⁴

Capital gains tax: We expect the Chancellor Rachel Reeves to increase rates of capital gains tax. This is, however, likely to constitute a shift of only a few percentage points given concerns about maintaining the UK’s international competitiveness. Unlike the Conservatives, Labour did not commit to freezing capital gains during the election campaign. As the Party has ruled out increases to income tax, national insurance and VAT, it has few levers to pull to raise revenue to fund its spending commitments. Capital gains tax is an attractive revenue raiser for the government given it is paid by a small number of individuals each year (who broadly sit outside Labour’s electoral base) and it fits with its wider commitment not to raise taxes on “working people”.⁵

Carried interest: Reforms to the tax treatment of carried interest which would see rates align with the higher rate of income tax (45%) are unlikely to be contained in the upcoming budget. Instead, we expect a compromise agreement to be reached whereby rates are lifted, albeit not significantly, to fulfil the Party’s manifesto commitment to “close this loophole”.⁶ Although it was one of Labour’s few tax raising measures it committed to pre-election, internal Treasury analysis has now revealed that the policy could have a “net cost to the exchequer”. This is because wealthy individuals could choose to leave the UK rather than pay the money and deter investment. Treasury civil servants estimate the rise could cost as much as £350 million per annum after five years.⁷

Debt measure: The Chancellor is likely to reform the UK’s debt measure to support public investment in infrastructure projects. Speaking at Labour Party Conference in October 2024, Rachel Reeves said that “it’s time the Treasury moved on from just counting the costs of investment in our economy to recognising the benefits too.” This suggests that the Treasury’s fiscal rules will be altered to allow the government to offset “assets”, against the wider national debt, thereby freeing up more money for investment. This is likely to amount to c.£50 billion worth of additional headroom.⁸ Importantly, the move will not allow Reeves to increase day to day spending, as Labour has said this must be met entirely from annual tax receipts.

¹Labour Party, Change, 13.06.24
²HM Treasury, Fixing the foundations: public spending audit 2024-24, 02.08.24
³IFS, Raising revenue from reforms to pensions taxation, 11.09.24
⁴IFS, Raising revenue from closing inheritance tax loopholes, 18.04.24
⁵Financial Times, IFS urges Labour Party to make ‘serious reforms’ to capital gains tax, 06.10.24
⁶Labour Party, Change, 13.06.24
⁷The Times, Labour poised for U-turn over tax plans for investment gains, 04.10.24
⁸The Times, Rachel Reeves hopes for £50bn windfall with fiscal rules rejig, 26.09.24

Post-Budget Webinar with the Rt Hon David Laws

GK Strategy Event

GK Strategy would like to invite you to: Post-Budget Webinar with the Rt Hon David Laws

The webinar will focus on the measures contained within the Budget, including what it means for the government’s policy priorities, businesses and the investment community moving forward, as well as what happens next.

There will be an opportunity for a Q&A at the end of the session.

Keynote speaker:
The Rt Hon David Laws – Former Chief Secretary to the Treasury and Minister of State for Schools

Thursday 31st October | 9am-10am

(the briefing will begin at 9:05am)
The event will be held virtually. Please RSVP by emailing events@gkstrategy.com for joining details.

The Rt Hon David Laws is a strategic adviser to GK with a wealth of experience across the policy and politics of education and skills.

Between 2001 and 2015, David served as the Liberal Democrat Member of Parliament for Yeovil. He held various senior frontbench positions for the party in Parliament, including as its spokesperson on schools, children and families, before joining the Cabinet as Chief Secretary to the Treasury in the Coalition Government. From 2012 to 2015, David was the Minister of State for Schools in the Department for Education.

He has served as Executive Chairman of the Education Policy Institute and the Education Partnerships Group. In December 2022, David was appointed chair of Energy UK, a post he started in early 2023.

Roundtable discussion: Local authority funding and its impact on the future of social care

Images: Seb Wright Media

For a roundtable event held in July 2024, hosts Hannah Haines (Head of Healthcare Consultancy, Christie & Co), Michâela Deasy (Head of PR & Comms, Compass Carter Osborne) and Lizzie Wills (Senior Partner & Head of Private Equity, GK Strategy) were joined by some of the biggest female names in the UK social care sector.

The roundtable brought together operators, lawyers, investors and sector experts, all of whom share a passion for quality healthcare and for driving an increased awareness of the challenges faced by operators as a result of funding challenges across the country.

Below are some of the key highlights from what was discussed around local authority funding and its impact on the future of social care.

According to the Local Government Information Unit, 50% of local authorities (LAs) have reported that they are likely to be bankrupt in the next five years, with 9% predicting they would be bankrupt in the next 12 months. This is already the case for a number of LAs, including Birmingham. These struggles are not going to be resolved without fundamental reform – of how services are delivered at a local level, or how they are funded.

To address the funding challenges they are facing, most LAs have identified areas to make direct cost savings. For example, many have confirmed that they will make budget cuts relating to parks and recreational spaces. Although this may not directly impact the social care sector, it could end up affecting the mental health of the communities that rely on these facilities. Meanwhile, 16% of LAs said they are looking to reduce spending in adult social care, 12% in children’s care services, and 10% in SEND, though statutory services will be better protected from funding cuts.

… For the full article on the Christie & Co website, click here.

To find out more about the team’s next roundtable event, contact Michâela Deasy: michaela@compasscarterosborne.com

Wales says BOGOF to unhealthy food & drink

GK Associate Director Thea Southwell Reeves analyses the Welsh government’s progress on regulating unhealthy food.

This week, the Welsh government took an important step towards tightening the regulatory environment around high fat, sugar and salt (HFSS) food. The measures include prohibiting retailers from offering promotions such as buy-one-get-one-free and three-for-two offers on unhealthy foods; a ban on free drink refills in restaurants; and preventing retailers from placing HFSS food in certain locations in stores. Worth noting, these regulations are also set to apply online so website entry pages, shopping basket and payment pages will all need to comply.

The consultation is open until midnight on 23 September and is seeking views from industry on the draft regulations and their proposed enforcement approach. If the proposals are approved by the Senedd, the legislation is likely to come into force in 2025.

These proposed changes form part of a broad range of approaches, both voluntary and regulatory, that the Welsh government is said to be considering to encourage the food and retail sector to produce, promote, and ultimately sell, healthier food and drink.

The increased regulation of HFSS foods has been on the table for years and is also being explored by Holyrood and Westminster. A consultation on Scotland’s ambitious HFSS regulations closed in May and the King’s Speech included measures to restrict the advertising of junk food to children, along with the sale of high-caffeine energy drinks to children. The cost-of-living crisis has derailed anything more ambitious in Westminster… for now.

Industry has, for the most part, been critical of moves to tighten legislation, arguing that they disproportionately impact the small food and drink producers and make selling food complex and costly. However, for businesses that are nimble, the rules represent an opportunity to gain advantage over non-compliant brands or big brands that are slow to adapt. In a similar vein, producers who can emphasise a healthier product range in marketing and brand positioning are set to attract consumers who are looking to reduce their HFSS intake.

GK Strategy is a political advisory firm. We help investors, business leaders and organisations to engage with policymakers and advise on the political, policy and regulatory aspects of M&A processes.

To discuss what the Welsh government’s consultation may mean for you and how you can engage with policy debates in the year ahead, please reach out to Thea@gkstrategy.com.

The GK Post-Election Breakfast Event

GK Strategy Adviser Rebecca McMahon reviews the GK Post-Election Breakfast Event.

The coming weeks and months will see the new Labour government pressing ahead with its agenda for government, and getting to grips with a number of difficult challenges facing the UK, from sluggish growth, to growing NHS waiting lists, to precarious local authority finances.

GK Strategy was delighted to host a panel discussion this week looking at how the government will tackle some of these issues, and how it will prioritise its time and resources to deliver on its ambitious policy pledges. GK was joined by former Minister and Health Select Committee Chair, Steve Brine, and Head of Research at Labour Together, Christabel Cooper, who shared their insights into the government’s approach, and some of the inevitable obstacles it will face in the coming months.

Both panelists agreed that while the list of public policy challenges inherited by Starmer and his team is by no means a short one, Labour ministers will now be deciding on areas where urgent action is most needed.

Reforming the UK’s planning system was identified as one of the priority areas for Starmer’s new administration. Our two panelists noted that the new Government’s ambition in this area has already been illustrated by repealing the de facto ban on onshore wind, re-introducing mandatory housing targets, and pledging to update the National Planning Policy Framework via consultation by the end of the Party’s first month in power.

As a policy area with implications for multiple sectors – including housebuilding, the green economy and major infrastructure– planning reform to unlock private investment will be at the core of the new Labour Government’s agenda. As Chancellor of the Exchequer Rachel Reeves set out in her first speech following her appointment, its ultimate success will rely on “unlocking private investment that we so desperately need”.

Healthcare and the future of the NHS was another policy area which featured prominently. Steve Brine pointed out that under current spending plans, funding for the health service is projected to rise at a lower rate than during the austerity years. Meanwhile, the NHS Workforce Plan continues to be underfunded and the outcome of the Health Secretary’s talks with the junior doctors uncertain. He noted that while the Government will soon have to make difficult spending decisions, there would be an emphasis on creating an investor-friendly NHS to support Labour’s ambitions to “crowd in” private investment to improve efficiency and health outcomes.

There was a consensus that Labour’s perspective on the use of the private sector in supporting the delivery of public services is a pragmatic one. Labour’s ‘wide but shallow’ majority – achieving 64% of parliamentary seats on roughly 34% of the vote – means that the Party will need to reassure voters that it is making headway on its policy programme. Our panelists agreed that working with the private sector will be key to successfully demonstrating this.

Please do get in touch via rebecca.mcmahon@gkstrategy.com if you are interested in attending future events or would like to set up a call to discuss the year ahead in politics.

GK Strategy – General Election Update

General Election Results Briefing

The GK team reacts to the 2024 General Election results, with GK’s Strategic Advisers sharing their insights on Labour’s historic victory, and the implications for Sir Keir Starmer’s new government.

To read our briefing please click here.