Labour would do well to heed the Gulf

There is still another week to go before UK chancellor Rachel Reeves’s first Budget. The long-awaited statement should set the direction and priorities for the new Labour government over the next four years. And, for Gulf investors and many others, it can’t come soon enough.

It has not been the best start for the government of prime minister Keir Starmer since Labour’s triumph in July. A sense of drift has been permitted to take hold, amplified by the long wait for Reeves’s first substantive outing. In the meantime, negative headlines have been allowed to dominate and own goals have been scored. Just what investors do not like.

First up, it emerged earlier this month that ADIA had written off its 9.9 percent position in Thames Water. The Abu Dhabi sovereign wealth fund cited a “challenging regulatory environment and operational performance”, according to the Financial Times. Not good.

Shortly afterwards, Qatar’s QIA said it was cutting its stake in Sainsbury’s. The QIA has been reducing its position for some time – the venerable supermarket chain has been under pressure from discounters – but selling down further is hardly a vote of confidence. Again, not good.

Other Gulf positions such as Qatar’s stake in Canary Wharf are not what they were, and then some.

The mood music has not been helped by Labour’s transport minister castigating P&O Ferries as a “rogue operator

There is also the prospect of renewed skirmishing around Abu Dhabi-owned Manchester City football club and its relationship with sponsors, and the circumstances of the purchase by Saudi Arabia’s Public Investment Fund of Newcastle United.

Oh, and anyone availing themselves of the UK’s private schools will find themselves paying a fifth more next year.

Some of these things – an evolving retail landscape and changing habits of working that mean once-proud buildings are no longer attractive to tenants – cannot be laid at the door of government. Labour also telegraphed other policies such as the private school VAT hike in its manifesto.

But UK newspapers are full of expected increases to capital gains tax and employers’ National Insurance contributions, a tax on investors. A CGT hike is likely to hit private and institutional investors on disposal of shares and other assets.

“Raids” on British pensions are also the stuff of daily headlines. But we do not know what form exactly these changes will take. And it’s been months now.

The mood music has not been helped by Labour’s union-aligned transport minister castigating P&O Ferries as a “rogue operator” and calling for a boycott. Louise Haigh, the minister in question, jeopardised a $1 billion investment by P&O’s owners DP World into London Gateway, a huge port development.

For non-dom investors, it looks as though a widening of the inheritance tax net to capture offshore trusts – and with them, assets around the world – is going to prove critical. The Gulf’s ruling families will not be affected as they are sovereign entities but plenty of others will be.

Gulf investors remain enthusiastic buyers of British residential and commercial property

Again, this was trailed in Labour’s manifesto but critical detail has been lacking. It looks as if decades (centuries, even) of pragmatism – non-doms in the UK are, unlike many new and old residents, contributors to the treasury – are going to be cast aside.

A lack of grip and detail is also evident on regulation. Heathrow airport, like Thames Water, is often cited as an asset that is being run hot by cynical owners. QIA (still) has 20 percent of the consortium that owns the airport. Yes, the facility is far from world class – although when compared with Paris Charles de Gaulle it is.

The point is that regulation and regulators need to improve if you want a better result.

There is still plenty to attract in the UK. Inflation has returned to pre-pandemic levels. Interest rates are likely to ease further – and with them the relative strength of sterling, which means that UK assets are likely to become cheaper. Gulf investors remain enthusiastic buyers of British residential and commercial property. London-listed shares are cheap-ish, certainly in comparison with the US.

Gulf sovereign wealth funds are still active. The PIF said in June that it was joining the QIA by buying a 15 percent stake in the maligned Heathrow. In August Adia agreed a deal to buy UK-based brokerage Hargreaves Lansdown for £5.4 billion ($7 billion) as part of a consortium.

And, earlier this month, the PIF again stepped up to buy a stake in Selfridges, the flagship department store on London’s ailing Oxford Street.

There is nonetheless a sense that Labour ministers do not particularly care for the Gulf. Perhaps we here are too brash and optimistic. But the UK government needs to produce economic growth from somewhere if it is going to come close to hitting its goals. More clarity and less invective, please.

James Drummond is Editor-in-Chief of AGBI. This article first appeared in his weekly newsletter – register here