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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.

Is Starmer Taking a Risk in His Attempt to Broaden Labour’s Appeal?

GK Advisers Noureen Ahmed and Felix Griffin reflect on Natalie Elphicke’s defection to the Labour Party and what this could mean for the Labour Party ahead of the next general election.

Keir Starmer is keen to exploit divisions within the Conservative Party, but is that enough to convince voters that Labour is a government in waiting?

When MPs took to the Common’s chamber for Prime Minister’s Questions on 8 May, we witnessed Natalie Elphicke defect to the Labour Party – the third Conservative MP to do so during this parliament. As a right-wing MP and vocal critic of Labour’s policies, Elphicke’s defection came as a huge shock to many in Westminster. Elphicke has previously accused Labour of being soft on issues related to human rights and immigration. As a result, there have been concerns from several Labour MPs that Labour’s commitment to tackling those issues could be undermined by her admission to the Party. Starmer’s willingness to embrace a defector from the right of the Conservative Party suggests a strategy aimed at broadening Labour’s appeal to Conservative voters, even if it means alienating the party’s left flank and risking Labour’s reputation on key issues such as social justice. This approach has sparked awkward questions about how far Labour’s leadership is willing to go to win Tory votes.

Labour’s strategy may be effective in the short term, creating a perception of decay within the Tory government and encouraging Conservative voters to switch allegiance. However, the success of the Greens and some independent candidates in recent local elections indicates that anti-Tory sentiment does not necessarily translate into enthusiastic support for Labour. To be truly successful, Labour will need both an appealing policy platform to secure votes at the general election and firm support across parliament.

While further defections may seem unlikely, they should not be ruled out entirely. As Sunak continues to face criticism that he is leading an increasingly chaotic government, it is evident that Labour will do everything it can to secure the victory it has long yearned for.

GK Insights- Student visas reform

GK Point of View – The impact of student visa reforms

GK Associate Hugo Tuckett assesses the recent student visa reforms, and what they mean for the higher education sector.

With the Government continuing to struggle in the polls, Rishi Sunak has launched a full-frontal assault on the immigration system aimed at bringing numbers down and cutting into Labour’s seemingly unassailable lead. 

Following a record net migration figure of 745,000 in 2022, the Government has undertaken a series of measures to tighten the UK’s immigration system. As they are the largest group of non-EU migrants, international students have come into the firing line. 

In May 2023, the Government introduced new restrictions to student visa routes by preventing international students from bringing family members on all but post-graduate research routes, as well as banning people from switching into work routes until their studies have been completed. These measures officially came into force on 1 January 2024. 

The Government expects this to result in an estimated 140,000 fewer people arriving in the UK. However, with years of frozen domestic tuition fees and reductions to teaching grants stemming from Britain’s exit from the EU, it is unclear whether the UK will retain its attractiveness to international students, the very group who have been covering the sector’s budgetary shortfalls. 

Notably, the Government’s own impact assessment refuses to consider the effects of preventing international students from bringing dependants on all but post-graduate research routes, given the lack of available evidence to determine how many students (who bring dependants) will be dissuaded. On a more positive note, the impact assessment finds that only 2% of total students with an expired student visa would be affected by the ban on switching work routes until their studies had been completed. 

Given the distinct possibility that numbers of international students arriving in the UK drop because of the changes, financial pressure will grow on higher education providers who have made over-optimistic assumptions about future growth in international student numbers as a means of balancing the books. 

As we enter an election year in which the Conservatives will be reluctant to loosen immigration controls, the likelihood that some providers collapse under the financial strain cannot be overlooked. 


Will Labour follow through on its commitment to reform carried interest?

It is no secret that Labour remains in a hugely advantageous position in the build-up to the next General Election, expected in Autumn 2024. YouGov’s latest polling has the voting intention figure at 47% compared to the Conservative’s 24%, and the Party looks likely to form the next government.

While Labour Leader Keir Starmer has broadly aligned himself with the Conservative Government’s economic agenda to date, one area where Labour has sought to create some distinction is with its proposals for private equity tax reform. While this is unlikely to gain a significant amount of national media attention, it will have huge implications for private equity firms operating in the UK and the UK’s attractiveness as a destination for this type of investment.

The proposals centre on the tax arrangements utilised by private equity firms, in particular carried interest. Carried interest refers to a share of profits earned by general partners of private equity firms. General partners typically receive 20% of a fund’s returns (usually above a pre-defined minimum return known as the hurdle rate) as a performance fee for managing the fund.

While this appears relatively uncontroversial, what has attracted particular attention is the tax treatment carried interest receives. Rather than being taxed as income, which would incur a tax rate of up to a 45%, carried interest qualifies for capital gains tax and is taxed at a rate up to 28%.

The private equity industry argues its payments are not bonuses but investment returns, as investors are required to invest their own money in deals to be entitled to them. Opponents of the current approach believe that the everyday reality of most private equity firms means they should be considered trading, not investment, businesses.

Shadow Chancellor Rachel Reeves has placed private equity tax arrangements firmly in her sights ahead of the upcoming General Election. Reeves has described the existing arrangements as “absurd” and said a Labour government would close the “carried interest loophole”. The Party estimates the change would raise £440 million a year for the Exchequer.

Reeves’ argument is also gaining some traction in the legal profession. In March 2023, a leading tax lawyer argued that most private equity funds should be treated as “trading” for tax purposes. Changing the classification would mean payouts would be levied as income with a top rate of 45%, rather than at a capital gains tax rate of 28%. The same author suggests that to facilitate the change, the Government would need to introduce legislation to avoid an uncomfortable judicial review of HMRC.

This stems from a statement agreed in 1987 between the British Venture Capital Association (BVCA) and Inland Revenue, which recent analysis suggests could be unlawful, saying that typical private equity funds were not “trading” for tax purposes, with the consequences being that carried interest was taxed as capital. Since then, the Inland Revenue and HMRC has followed the BVCA statement, and private equity funds rely on it as a matter of course.

If legislation to change the existing system were to be introduced, it is currently unclear the extent to which it would be prioritised by an incoming Labour administration. Other long-touted reforms, namely amending VAT arrangements on private school fees, for example, will form part of the Party’s first year in government Shadow Ministers have confirmed. With Labour positioning economic growth as a central plank of its election pitch, the wisdom of alienating potential investors will also likely be called into question. At the recent Party Conference in Liverpool, Labour confirmed it would seek to unlock private sector investment across a variety of industries including infrastructure for digital connectivity, laboratories and energy.

While Labour has previously made bold commitments in relation to the private equity industry, wider pledges and the prioritisation of other reforms could push changes to carried interest tax arrangements down the pecking order. However, given that Labour has clearly presented its views on ending what it refers to as a “loophole”, the viability of dropping the proposals altogether is unlikely.

A possible route forward would be to reform the current capital gains tax treatment utilised by the private equity industry so that returns on investments in sectors outside Labour’s industrial strategy are taxed as income, while investments in those sectors continue to benefit from the reduced rate. While Labour has confirmed it has no plans to introduce a wealth tax, increase capital gains tax or put up the top rate of income tax, this does leave the door open to a two-tiered approach. This would allow Labour to present itself as going after private equity bosses, an argument popular with its traditional voter base, while also encouraging investment in areas tied to its economic agenda.

GK Strategy is an expert advisory firm that supports investors with political and regulatory due diligence, and political advice and insight, across a range of different sectors including energy efficiency, adult social care and education. Please do get in touch with our insights team at if you would like to discuss Labour’s approach to private equity tax reform or any other potential investment areas.