The resignation of UK Prime Minister Keir Starmer has triggered the pound to fall and gilt yields to climb as financial markets’ concerns about an Andy Burnham leadership grow, warns the CEO of one of the world’s largest independent financial advisory organisations.
The warning from Nigel Green, CEO of deVere Group, comes as investors assess the implications of Starmer’s decision to step down after a turbulent period for the government and growing speculation over who will lead Labour into the next phase of its administration.
He says: “Financial markets have already begun to react.
“Sterling weakened against the dollar following the announcement, while gilt yields remain elevated after months of political uncertainty and concerns about the UK’s fiscal outlook.
“Investors are now turning their attention to the identity of Starmer’s successor and what it could mean for taxation, borrowing and economic policy.”
Nigel Green continues: “The market’s first question isn’t who replaces Keir Starmer. It’s whether the next Prime Minister pushes Britain further towards taxing wealth and capital.
“If investors conclude the answer is yes, sterling falls, gilt yields rise and money leaves.
“It’s that simple.”
The deVere CEO says Andy Burnham’s growing political profile will inevitably draw greater scrutiny from investors seeking to understand the future direction of government policy.
“Andy Burnham’s political stock has risen sharply and markets are paying attention.
“His growing influence immediately raises the probability of wealth taxes becoming a serious policy discussion.
“Investors won’t wait for legislation, they react to direction.”
Nigel Green says Starmer’s departure also throws fresh uncertainty around the future of Chancellor Rachel Reeves, who has been closely associated with the government’s economic strategy.
“Rachel Reeves has been the face of Labour’s economic credibility. Starmer’s resignation leaves a giant question mark over her future.
“If she exits too, markets lose the two figures most closely associated with fiscal restraint inside this government.
“Investors will not shrug that off.”
He argues that Britain’s fiscal position leaves little room for policy mistakes at a time when economic growth remains subdued and government borrowing requirements remain substantial.
“Britain already has a debt problem, a growth problem and a productivity problem.
“The last thing financial markets want to hear is talk of wealth taxes, exit taxes and bigger spending commitments.
“Yet those risks have just become harder to dismiss.”
The chief executive warns that affluent individuals and internationally mobile investors are likely to respond long before any formal policy proposals emerge.
“There is a dangerous assumption in politics that wealthy people will simply sit still and pay whatever governments demand. They won’t.
“Some will restructure, some will relocate, and some will move capital elsewhere.
“The Treasury can tax wealth, but can’t force wealth to stay.”
He says deVere has for months already been seeing increased interest from clients exploring international wealth structures, alternative residencies and broader geographic diversification.
“People who have options are looking at those options more closely.
“They’re paying attention to what is happening politically and drawing their own conclusions.
“Wealth tends to move before governments move.”
Nigel Green also believes discussions around wealth taxes could rapidly evolve into debates over measures designed to discourage wealthy individuals from leaving Britain.
“Every serious conversation about wealth taxes eventually runs into the same obstacle.
“People leave. Once that happens, politicians start discussing ways to stop them leaving.
“Exit taxes move from fringe idea to mainstream debate far faster than many expect.”
He warns that bond investors will closely scrutinise every development in the leadership contest.
“Investors remember what happened in 2022 with the Liz Truss mini budget.
“The lesson was brutally clear. Bond markets punish governments the moment confidence starts to crack.
“Gilt investors will now examine every statement from leadership contenders through the lens of borrowing, spending and taxation.”
Nigel Green says markets will ultimately focus less on personalities and more on whether Britain can maintain confidence in its long-term fiscal trajectory.
“If investors conclude Britain is moving in the wrong direction on fundamentals, they will demand a higher price for financing the country.”
Nigel Green concludes: “The market reaction so far is a warning shot. Sterling is weaker and gilt yields are elevated. Investors are asking what comes after Starmer.
“If Andy Burnham emerges as the frontrunner and markets become convinced Britain is heading towards wealth taxes and a more interventionist economic agenda, the pressure on the pound and gilts is likely to intensify.
“Politics is now becoming a market driver in Britain again.
“Investors will be watching Labour’s leadership contest very closely because the outcome could have real consequences for UK assets, borrowing costs and capital flows.”
