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June 2024 monthly update

Read our June monthly update – a roundup of the latest financial news and economic headlines.

Global elections pose threat to UK’s financial stability

The Bank of England (BoE) has released its latest financial stability report within which it highlighted “global vulnerabilities” for the sector. “Policy uncertainty” is a vulnerability associated with elections worldwide – including Britain, France, and the USA.[1]

The upcoming French election could hand a majority to Marine Le Pen and her National Rally party. She favours increased borrowing; a victory for her risks heightening France’s already high debt levels. “Public debt to GDP levels have increased across a number of major economies, which could have consequences for UK financial stability,” said BoE officials.[2]

If bond investors flee an important economy like France, it could send shockwaves through wider markets. In turn, this threatens to increase borrowing costs just as indebted companies and households must refinance loans and mortgages.[3] Furthermore, financial markets face the risk of a “sharp correction” to asset prices; these have risen steeply in recent years. As such, the BoE’s Financial Policy Committee noted that millions of households face much higher monthly mortgage payments as well. In some cases, these could increase by 50% or more.[4]

BoE policymakers claim that they will continue to stress test the UK banking sector. They will be testing the industry against the two possible separate and “severe” economic upsets. The first, a “supply-shock scenario” would be like the effects of Russia’s invasion of Ukraine. It would see inflation and interest rates to sour to 12% and 9%, respectively. Moreover, geopolitical stressors would disrupt supply chains and cause global commodities to skyrocket in price. A “demand-shock scenario”, on the other hand, would be like the impact of the COVID-19 lockdowns. It assumes that demand for global goods and services would decline. Consequently, inflation and interest rates would plummet to below 0.5% for a prolonged period.[5]

In both shocks, unemployment is forecasted to peak at 8.5%. Similarly, the real estate sector would be hit tremendously with commercial prices declining by nearly 50%. The BoE will release an aggregate report of its findings by the end of the year.[6]

Frozen Income Tax threshold leads to more pensioners paying

According to the latest data from HM Revenue & Customs (HMRC), the number of income taxpayers for the 2024/25 fiscal year rose by 4.4 million to a total of 37.4 million people. This is a 13% rise from 2021/22 in the general population but those over the state pension age have been harder hit. Frozen tax thresholds have caused 8.5 million pensioners to become liable – a 26% increase since 2021/22.[7]

While the Conservative Party claim that the Labour Party will enforce higher taxes, both parties plan to keep thresholds at current levels until 2028. Critics and tax experts state that this is a “stealth tax”. The freeze is dragging more low-income households into paying basic-rate tax (on income over £12,570/year) along with pulling others into the higher 40% tax rate (on income over £50,270/year). This is known as “fiscal drag”. It raises billions for the Treasury even though the government can technically claim to have not increased tax burdens.[8]

Rachel Griffin, tax expert at the wealth management company Quilter, said that the statistics caused by fiscal drag overshot those predicted by the Office for Budget Responsibility (OBR). The number of people paying the top rate of Income Tax is due to pass 1m for the first time this year. In 2021/22 (the year before the thresholds were frozen), the number of people paying the 45% tax rate was 520,000. Over the past three years, this figure has more than doubled.[9]

Steve Webb, partner at LCP, commented that “a combination of frozen tax thresholds and significant increases in the state pension means the number of pensioners paying tax has continued to soar”. “This is a continuation of a long-term trend which has seen the number of over 65s paying tax rise by around 4mn since 2010-11,” he continued. “For a pensioner in Britain, being an income taxpayer is now the norm rather than the exception.”[10]

Labour to exempt executives who invest own capital from equity tax crackdown

The Labour Party plans to close a loophole in private equity’s carried interest taxes. In their view, it is unreasonable that carry, the gain on a successful deal, is treated as Capital Gains Tax (CGT) instead of Income Tax since the former is taxed at a far lower rate. When fund managers stake their own money, however, the current rules may still apply.[11]

“I don’t think it is right that […] what is essentially a bonus is taxed at a lower rate than employment income when you’re not putting your own capital at risk,” said Shadow Chancellor Rachel Reeves. “If you are putting your own capital at risk, it is appropriate that you pay capital gains tax.”[12]

Some private investment funds, such as Goldman Sachs, already require staff to put their capital at risk to earn a share of carry. As such, the UK private equity industry has responded positively to Reeves’ suggestion. Michael Moore, chief executive of the British Private Equity & Venture Capital Association, commented: “the shadow chancellor’s clarifications are an encouraging signal that Labour is willing to back up its pro-business mood music with engagement on the substance.”[13]

If Labour opts for the co-investment approach, they will need to decide on factors such as the level of investment required for executives to qualify for the lower tax rate. Furthermore, they will need to clarify whether investment managers must fund this from their own pockets or if contributions from colleagues and their employer will count. Non-recourse loans are another area that must be explored. Borrowers take on lower risk for these loans since their wealth is protected from the lender.[14]

The private equity industry is likely to lobby for lower investment thresholds for large international funds. Such funds can oversee tens of billions of pounds so co-investment of even 1% would be too much for many investment managers. In 2021/22, 3,000 dealmakers shared £5bn in carried interest. Adjusting for inflation, Labour hopes to raise £565m annually from their crackdown though the Financial Times calculates that this could rise to almost £1bn. The gap between the two figures offers room for some carried interest to continue to be taxed at a lower rate.[15]


[1] Barnett, J. (2024) Global elections pose risk to UK’s financial stability, says Bank of England, The Times & The Sunday Times. Available at: (Accessed: 28 June 2024).

[2] Wallace, T. (2024) Le Pen threatens Britain’s economy, Bank of England warns, The Telegraph. Available at: (Accessed: 28 June 2024).

[3] Ibid.

[4] Barnett, J. (2024).

[5] Makortoff , K. (2024) Global wave of elections could hit UK financial system, warns Bank of England, The Guardian. Available at: (Accessed: 28 June 2024).

[6] Ibid.

[7] Nazir, S. (2024) Industry reacts to ‘agonising pain’ of fiscal drag, Professional Adviser. Available at: (Accessed: 28 June 2024).

[8] Wood, Z., Jones, R. and Walker, P. (2024) Number of UK income tax payers leaps by 4.4m in three years due to threshold freeze, The Guardian. Available at: (Accessed: 28 June 2024).

[9] Agyemang, E. (2024) Number of UK top rate taxpayers set to surpass 1mn for the first time, Financial Times. Available at: (Accessed: 28 June 2024).

[10] Khan, A. (2024) Nearly 9mn pensioners paying income tax as frozen thresholds bite, The Guardian. Available at: (Accessed: 28 June 2024).

[11] Cash, J. (2024) Labour’s private equity tax raid will pass over bosses who put their own capital at risk, Financial News London. Available at: (Accessed: 19 June 2024).

[12] Ibid.

[13] O’Dwyer, M., Agyemang, E. and Wiggins, K. (2024) Why UK private equity is ‘encouraged’ by Labour’s signals on promised tax crackdown, Financial Times. Available at: (Accessed: 19 June 2024).

[14] Ibid.

[15] Ibid.

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