Hard Labour softens

PEPs have been one of the success stories of the decade, but how safe would these tax-free investments be under a Labour government?

In recent months there has been speculation that if the Labour Party were to win the general election it would shake up the PEP regulations. It has been suggested that a Labour government might limit the tax relief on PEPs to the basic rate of tax, and that it is considering setting a maximum level to the overall amount that can be sheltered from tax through a PEP.

In recent weeks the party has moved to allay these fears. Mike O'Brien, Labour's shadow economic secretary, has dismissed the rumours as "rubbish", while in a recent interview Alistair Darling, shadow chief secretary to the Treasury, said that the Labour Party had always supported the PEP regime and had no plans to change it.

Both the Association of Unit Trust and Investment Funds, and the Association of Investment Trusts have said that they see no reason to think the Labour Party will change the PEP rules. Many in the investment world support this view. Tony Wood, marketing director at Virgin Direct, believes Labour is committed to keeping personal equity plans.

"It makes perfect sense. The hordes of people who have invested in PEPs over the last 10 years are exactly the same audience that Labour is appealing to," he says.

Paul Ashby, marketing manager at Barclays Bank, thinks Labour is as committed as the Conservatives to PEPs.

"I don't think the Labour Party has a problem with the principle of PEPs. But they might decide there's a better way to offer tax incentives as a way to save and invest," he says.

In fact, a recent speech by Gordon Brown, the shadow chancellor, hinted at the possibility of a new scheme being launched, offering tax relief to long-term investors.

Many investors are still concerned about the implications of a possible Labour victory in the polls as a survey by Gavin Anderson & Co, a firm of communications consultants, illustrates.

Of the 600 unit trust investors surveyed, 37 per cent said they thought a Labour election victory might harm investment prospects in the sector.

On the other hand, a survey of floating voters published this week by the FT and the advertising agency FCB suggests that Labour is no longer seen as a party that would tax the public more significantly than the Tories.

While some investors are obviously nervous at the prospect of a Labour government, the investment industry is ambivalent.

As Ian Overgage, marketing manager at Flemings, points out: "Historically, markets have not underperformed under a Labour government compared with a Conservative government over the full five-year period".

In fact, the biggest fall on the stock market was between 1972 and 1973 when the market fell in value by around 75 per cent under a Conservative government, he notes.