Which Chancellors of the Exchequer have been best for the UK stock market?

Russ Mould
1 March 2021

“The Conservative Party’s Benjamin Disraeli, twice Prime Minister and thrice Chancellor of the Exchequer, once said of his bitterest political rival, who held each post on four occasions, ‘Well, if Mr Gladstone fell into the Thames that would be a misfortune; and if anybody pulled him out, that would be a calamity,’” says Russ Mould, AJ Bell Investment Director. “The Tories’ latest Chancellor, Rishi Sunak, will be hoping for a warmer welcome for his Budget and he is likely to measure success in terms of jobs, economic growth and ultimately opinion polls and votes. Investors will be looking to their portfolios to gauge the effect of his policies and history suggests that the UK stock market has, for whatever reason, done better on average under Conservative Chancellors than Labour ones.”

“Since the inception of the FTSE All-Share index in 1962, the UK has had 17 Chancellors, 12 of whom have been Conservative and five Labour. The longest term in office was that of Labour’s Gordon Brown, the shortest of the Conservatives’ Iain Macleod, who held the post for barely a month before his sudden, unexpected death.

 Party

Chancellor 

Tenure

Tenure (days)

Labour

Gordon Brown

1997-2007

3,708

Conservative

Nigel Lawson

1983-89

2,328

Conservative

George Osborne

2010-16

2,254

Labour

Denis Healey

1974-79

1,885

Conservative

Sir Geoffrey Howe

1979-83

1,498

Conservative

Ken Clarke

1993-97

1,435

Conservative

Anthony Barber

1970-74

1,318

Labour

James Callaghan

1964-67

1,137

Conservative

Philip Hammond

2016-19

1,105

Labour

Alistair Darling

2007-10

1,047

Labour

Roy Jenkins

1967-70

933

Conservative

Norman Lamont

1990-93

910

Conservative

Reginald Maudling

1962-64

823

Conservative

John Major

1989-90

397

Conservative

Rishi Sunak

2020-

377

Conservative

Sajid Javid

2019-20

203

Conservative

Ian Macleod

1970

34

Source: www.gov.uk

“At first glance, there is nothing in it between the two parties. Under Conservative Chancellors, the FTSE All-Share has chalked up a total capital gain of 355%, in nominal terms. 

“That equates to an average advance per Chancellor of 32.1% (including Mr Macleod’s brief term with that of his successor, Anthony Barber), while under Labour the benchmark has risen by 161% for an average gain of 32.2%. 

“Across 34 years of Tory Chancellorships that is a compound annual growth rate (CAGR) of 4.5% against 4.1% under 24 years of Labour in 11 Downing Street and three of the top-five best spells under a single Chancellor actually come under Labour, again in nominal terms.

 

 

 

Nominal capital return

 

 

 

FTSE All-Share

Conservative

Nigel Lawson

1983-89

144.4%

Labour

Denis Healey

1974-79

101.5%

Labour

Gordon Brown

1997-2007

58.9%

Conservative

Sir Geoffrey Howe

1979-83

56.4%

Conservative

Ken Clarke

1993-97

51.8%

Conservative

Norman Lamont

1990-93

36.4%

Conservative

George Osborne

2010-16

31.3%

Conservative

Reginald Maudling

1962-64

20.5%

Labour

James Callaghan

1964-67

17.2%

Conservative

Philip Hammond

2016-19

14.3%

Conservative

Anthony Barber

1970-74

8.1%

Conservative

Sajid Javid

2019-20

2.2%

Labour

Roy Jenkins

1967-70

1.5%

Conservative

Ian Macleod

1970

1.6%

Conservative

John Major

1989-90

(3.4%)

Conservative

Rishi Sunak

2020-

(8.6%)

Source: Refinitiv data, www.gov.uk

“However, the picture changes profoundly when inflation is taken into account and capital returns from the FTSE All-Share are assessed in real (post-inflation) terms rather than nominal ones.

“Here, Conservative chancellors come out well on top, as the withering effect of inflation upon investors’ returns from the stock market under Labour’s Healey Chancellorship of the mid-to-late 1970s comes into play.

 

 

 

Nominal

Real

Conservative

Average gain

 

32.1%

14.0%

Labour

Average gain

 

32.2%

(4.0%)

 

 

 

 

 

Conservative

CAGR

 

4.5%

2.8%

Labour

CAGR

 

4.1%

(0.2%)

Source: Refinitiv data, www.gov.uk

“It must be noted that inflation also chewed up the nominal gains made by the FTSE All-Share under the Tory Chancellors Sir Geoffrey Howe (1979-83) and Tony Barber (1970-74).

 

 

 

Real capital return*

 

 

 

FTSE All-Share

Conservative

Nigel Lawson

1983-89

105.9%

Conservative

Ken Clarke

1993-97

40.6%

Conservative

Norman Lamont

1990-93

27.8%

Labour

Gordon Brown

1997-2007

26.8%

Conservative

Reginald Maudling

1962-64

14.6%

Conservative

George Osborne

2010-16

13.5%

Labour

James Callaghan

1964-67

6.1%

Conservative

Philip Hammond

2016-19

4.4%

Conservative

Sir Geoffrey Howe

1979-83

1.4%

Conservative

Sajid Javid

2019-20

1.4%

Conservative

Ian Macleod

1970

1.1%

Labour

Denis Healey

1974-79

(8.9%)

Conservative

Rishi Sunak

2020-

(9.4%)

Labour

Roy Jenkins

1967-70

(18.0%)

Conservative

John Major

1989-90

(14.1%)

Labour

Alistair Darling

2007-10

(26.0%)

Source: Refinitiv data, www.gov.uk. Adjusts nominal return by change in the retail price index (RPI) as CPI data only goes back to January 1989 in current format

“As financial markets today ponder whether inflation is about to make a return, and the yield on the benchmark UK ten-year bond, or Gilt, rises as prices fall, a repeat of the Barber Boom is something that Mr Sunak will be determined to avoid, even if he will be looking to support and boost growth as best he can, as the economic fall-out that followed was very painful for the UK and so painful that the Tories fell from office after a pair of General Elections in 1974.

“Not all of the inflation that tore through the British economy in 1973-94 could be laid at the door of Mr Barber’s policies, as the 1973 oil price shock had a huge amount to do with it, and this highlights the importance of factors which are beyond the control of any Chancellor, no matter how diligent or skilled. 

“Alastair Darling could hardly have expected to inherit the Great Financial Crisis which prompted a deep recession and a wicked bear stock market. Norman Lamont inherited British membership of the Exchange Rate Mechanism, fought to defend the pound and a policy in which he did not believe and oversaw a devaluation of sterling which actually helped the FTSE All-Share to rally. Mr Sunak has had to contend with COVID-19 and the worst recession for three centuries, so perhaps he has been given the worst hand of all.

“Even so, investors, looking at the world through the narrow perspective of their portfolios, will be wanting Mr Sunak to think back to Barber. Inflation mangled portfolio returns for much of the 1970s and all the way through to the Thatcher-Howe PM-Chancellor team of 1979-83. Bizarre as it may sound, markets may want to see a little inflation – and growth – but not too much, especially as any sustained surge in prices could force bond yields higher and even oblige the Bank of England to act and raise interest rates. 

“Markets came close to falling out of bed last week, as they pondered such a prospect, so as ever Mr Sunak has a difficult balancing act, as he juggles growth, jobs and inflation, as well as votes.”

Russ Mould
Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993 he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk

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