The UK went to the polls on July 4 and overwhelmingly voted in its first Labour government since 2010. The Labour Party secured a commanding 412 seats, nearly doubling its representation in the House of Commons, while the Conservative Party suffered its worst defeat in history, winning just 121 seats. Despite the blowout number of seats secured, Labour won only 34% of the total votes cast compared to the Tories’ 24%, and voter turnout was near historic lows.
Labour’s leader and Britain’s new Prime Minister Kier Starmer has identified five missions that will animate Labor’s policymaking agenda: kickstart economic growth; make Britain a clean energy superpower; take back our streets (law and justice); break down barriers to opportunity; and build a National Health Service (NHS) fit for the future. His cabinet includes a mix of experienced figures and new faces to deliver on the new government’s mandate.
Labour’s huge parliamentary majority should allow the party to deliver much of its agenda, though it will face public pushback on the more challenging elements such as planning and public service reform. They also have inherited a sizeable budget shortfall, raising questions about where the money will come from to make good on their promises.
Policy Implications of Labour's Win
Given Labour’s extensive outreach to the private sector over the last 18 months, we are cautiously optimistic about the new government. However, there is a big difference between making broad policy pronouncements on the campaign trail and actually effecting change once in office.
New regulations and new revenue-raisers are likely as the Starmer government defines its industrial strategies, with potential downside implications for business. These include:
- Economy: Our first glimpse into potential revenue raisers will come in the fall when Labour releases its first budget.We expect the budget to feature three measures: reform of carried interest, removal of non-domiciled status, and "a proper windfall tax" on oil and gas. The Treasury team, led by the UK’s first female Chancellor, Rachel Reeves, will conduct a spending review to put public services on a sustainable footing with firm spending limits.
- U.S. Relations: Maintaining strong and stable relations with the U.S. remains as much of a priority for the new government as it was for the last.PM Starmer has expressed interest in pursuing a bilateral free trade agreement, and if the U.S. were to return to the negotiating table, Labour would need to make a conscious choice about potential economic and regulatory orientation away from the EU — at the very time when the new government will also be seeking to repair relations with Brussels.
- UK Trade Relations: Labour believes trade policy should be refocused on resilience of supply, economic security, and primarily, unlocking sustained economic growth. Notwithstanding Starmer’s interest in an FTA with the U.S., the Biden administration’s phobia of trade agreements may lead the government to pivot toward more targeted deals that complement its domestic industrial objectives.
- EU Relations: The UK plays an integral role in supporting Europe’s defense, and we can expect a new security and defense pact between London and Brussels. The key will be to ensure American companies don’t lose out on new opportunities.
- Defense and Ukraine: Starmer will be in Washington this week for the NATO summit alongside his foreign and defense secretaries, giving the new team its first chance to demonstrate their approach to defense and security. The Labour manifesto said the UK would remain “steadfast” in its “military, financial, diplomatic and political support for Ukraine,” and the UK promises to play a leading role in Ukraine’s accession to NATO.
- Financial Services: This marks a potential inflection point for UK financial services regulation, as financial services regulators are reportedly within the scope of the new Regulatory Innovation Office. This office is tasked with enhancing regulatory accountability and fostering innovation. Given its broad implications beyond a single sector, this new office warrants careful scrutiny.
- Energy and Sustainability: Labour wants to move quickly on its energy plans, which the party views as key to its broader economic growth ambitions and industrial strategy. Among other things, it has committed to bring forward legislation to establish the proposed publicly owned energy company, GB Energy, within the first 100 days. There are scant details about how the new entity would operate or be funded, but reference to a windfall tax on gas and oil companies raise concerns.
- Digital: Labour sees digital innovation as central to delivering its five missions and its commitment to public service reform. The party has also indicated that it would keep the broad AI regulatory framework its predecessors had set out – and that it would move to strengthen the AI Safety Institute with statutory powers to gain access to data and models from frontier AI firms.
- Life Sciences: Wrestling to “build an NHS fit for the future” is one of the steepest hills for the new government. The party has set out plans to pay NHS workers overtime for weekend and evening shifts, double scanning and diagnosis machines, and digitalize outdated infrastructure. Labour also intends to recruit 8,500 new mental health staff and use spare capacity among private providers to clear the backlog. How it fares with these efforts will be among the most significant factors affecting Labour’s approval ratings.
Conservative Party in the Wilderness
The Conservatives may be in the political wilderness for a protracted period, having suffered a historic defeat and losing over 250 seats. Many senior Tory MPs were ousted, including defense secretary Grant Shapps, Commons leader Penny Mordaunt, and former prime minister Liz Truss.
Rishi Sunak has said he will step down as leader of the party, and potential candidates, including former trade secretary Kemi Badenoch and former home secretary Suella Braverman, have already flagged their interest in assuming the role. This will be a big battle with significant bearing on whether the party continues to tack rightward or charts a course back to the center.
Closing Thoughts
It’s a new day in the UK, which brings both opportunities and potential challenges. The Labour Party’s decisive victory and establishment of a strong government under Prime Minister Keir Starmer could provide the stability and predictability that business needs to succeed. This is especially true in terms of UK-EU relations.
Then again, it’s been more than a decade since Labour last governed, and it’s far from clear how the new government plans to achieve its ambitious policy agenda and who will pay for it. New regulations and revenue-raisers are likely. The Chamber’s U.S.-UK Business Council will continue to advocate for regulation that is realistic and fit for purpose and sound policies that bolster innovation and growth.
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