Potential stock market winners and losers if Labour wins the general election

There have been plenty of hints as to what might appear in Labour’s general election manifesto. The formal document may still be a few days away but you don’t need to wait to find out how various industries might be affected if Keir Starmer secures the keys to Number 10 on 4 July.

Here is a look at some of the key sectors which could be winners or losers under a Labour government.

Housing

There is a chronic under-supply of housing in the UK versus demand. The property market remains an emotive issue with the public and all political parties know it is a hot area through which they could win more voters.

Labour is likely to put housing near the top of its election agenda and has already pledged to ‘get Britain building again’.

Expect changes to the planning system and a greater emphasis on building affordable homes, both potentially good news for companies involved in the provision of materials to the property sector and for housebuilders. It could lead to greater activity levels and less red tape, much to the relief of company bosses.

The low-hanging fruit is what Labour calls the ‘Grey Belt’ – poor quality wastelands and disused car parks that are ripe for plonking homes on. These locations could soon be transformed to help solve the country’s housing crisis, but don’t expect equilibrium between supply and demand any time soon. Fixing the housing situation is a task that could take decades to complete.

Labour has pledged to upgrade draughty homes and help residents to stop wasting heat by it escaping into the great outdoors. That implies a boost for construction workers, engineers and electricians.

There are multiple companies on the UK stock market that might benefit from Labour’s housing strategy. For example, Travis Perkins, Wickes and B&Q/Screwfix-owner Kingfisher could see higher demand from tradesmen and homeowners eager for the bits and bobs needed to spruce up flats and homes.

Construction groups Morgan Sindall and Kier provide services to the property sector and could be rubbing their hands with glee at the prospect of Labour getting into power. Ventilation specialist Volution might find it is busier if Labour introduces stricter legal targets on air pollution and retrofits millions of homes to keep them free of damp. Among the housebuilders, Vistry and MJ Gleeson are specialists in affordable housing and could find themselves in investors’ sights as potential beneficiaries of a Starmer government.

It’s important not to jump to conclusions when looking at these companies. Just because their activities complement Labour’s proposed policies, it doesn’t mean they are laughing all the way to the bank.

Energy

Labour wants to greatly improve the UK’s position in renewable energy, focusing on wind and solar as well as doing more with hydrogen and boosting efforts to capture and store carbon. It wants to launch Great British Energy, an initiative to own, manage and operate green energy projects alongside private firms. The £8.3 billion funding in Labour’s first parliament would come from tougher measures on fossil fuel producers and ratcheting up the windfall tax on oil and gas projects.

Including a 35% levy, oil and gas projects are now taxed at 75% in the UK. Labour has proposed to increase the total tax rate to 78% and remove tax relief on new projects.

UK-focused oil and gas companies have already moaned about the tax system being punishing under the Conservatives and how the system is constantly changing, but under Labour it could reach the point where only a select number of operators would stay the course in this country. It’s no wonder some of the big operators have been reducing their exposure to the UK North Sea.

Ithaca Energy doubled down on its exposure through the purchase of UK assets from Italy’s ENI, but Serica Energy is actively looking to diversify away from the UK and Harbour Energy has already begun travelling down the same path.

Labour’s goal to boost investment in the green economy could put the spotlight on specialists listed in the UK including Costain which advises on energy transition work and environmental services group Ricardo.

An expected push for nuclear power plays into Rolls-Royce’s strengths as Labour has shown interest in small modular reactors, something the UK engineer has been developing. It has designed a factory-built nuclear power plant that it believes will offer clean, affordable energy ‘for all’.

Rolls-Royce has been among the best performing shares on the UK stock market in recent years as investors bought into its recovery story. Being in a strong position to capitalise on small modular reactors looks like fortuitous timing for Rolls-Royce if Labour gets elected and could potentially act as another catalyst for its share price. After all, investors love a good narrative and to champion British experts.

Rail

It is no secret that Labour hates the current state of UK rail. The industry is ripe to be nationalised and while that won’t happen at the click of a finger, the threat creates a major overhang for FirstGroup as the UK’s listed rail operator.

Ticket seller Trainline has also been caught up in the drama, but closer inspection would suggest it might come out of this situation intact.

Trainline’s shares have already experienced a wobble over potential changes to the UK rail system, but they’ve started to recover. A Labour spokesperson was quoted in The Telegraph as saying the party would not revive the Conservative’s plan for a national retailing app for train tickets, adding that third party retailers are needed to help achieve a more simplified system.

Defence

At first glance, it would appear that Labour is supportive of the defence sector as Keir Starmer has vowed to raise defence spending to 2.5% of GDP if he became prime minister. When that could happen is another thing. Labour would need to do a thorough review of current spending and work out its priorities.

Despite the Conservatives already having the same goal in place with a deadline of 2030, there is a risk this target could remain in limbo if we have a change in government.

What’s clear is that the political party wants to prioritise British companies for defence work and to reduce the volume of new contracts being awarded to overseas entities.

Outsourcing

Consultants won’t be high up on Keir Starmer’s Christmas card list. He wants to introduce an ‘Office for Value for Money’ to ensure taxpayers’ money is spent wisely and to halve government consultancy spending.

Labour was responsible for the previous outsourcing boom and now it might be the architect of its demise. It wants to bring public services back into government hands, suggesting that waste collection, cleaning, catering and maintenance services and more will no longer be a ripe opportunity for the UK’s army of outsourcing specialists.

A lot of people think Conservative politicians awarded lucrative contracts to their friends and associates, and now Labour wants to bring an end to this questionable practice. Serco, Mitie, Babcock and Capita all look vulnerable if there is a cull in outsourcing work.

Retail, leisure and hospitality

All these industries have benefited from immigration as a source of workers prepared to do jobs others don’t want to do, and often for little pay. With both the Conservatives and Labour favouring stricter rules on immigration, and Brexit having already made it harder for certain foreigners to find work in the UK, companies have faced a smaller pool from which to recruit and that has pushed up wages. Consumers have shouldered the brunt of these additional labour costs through higher prices.

This situation could be exacerbated if Labour wins the election and changes the zero hours contract system. It wants to ban ‘exploitative’ zero-hour contracts as part of a broader initiative to boost wages, make work more secure and support working individuals. Frasers is among the names on the stock market to have made full use of zero-hours and any change to the system means it has less flexibility for its workforce.

This scenario extends into other places such as the support services industry, with Mitie among the potential losers from a ban on zero-hours.

Smoking and vaping

Rishi Sunak was desperate to lay the foundations to stop more people from smoking and vaping, and it seems the baton could be passed to Labour if it wins the election. That’s bad news for big companies in this sector such as British American Tobacco.