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There is a Danish proverb "It’s difficult to make predictions, especially about the future." Despite that, it is difficult to resist the temptation!

My July 2024 monthly column for the magazine "Islamic Finance News" had to be submitted a few days before the 4 July 2024 UK general election.

Naturally I could not resist speculating on the result. I was broadly correct, which wasn't hard given the polling data, although I underestimated Labour's final majority. More relevantly for the readership, I set out my views on what a change of government would mean for Islamic finance.

You can read the column below. So far the Labour government has delivered on a change in tax law to eliminate the tax charge that could previously arise on Shariah compliant real estate financing. I expect a steady flow of changes in coming years.

What will the UK’s general election mean for Islamic finance?

On Thursday 4 July 2024, the United Kingdom will hold a general election, electing a new House of Commons to replace the one elected in December 2019.

Humans cannot foretell the future – only God has that prerogative. However we can make guesses, which sound more respectable when we call them “predictions.”

My expectation is that the Labour Party will emerge with a majority of at least 100 over all other parties combined. This will end the period of Conservative & Liberal coalition government from 2010 – 2015 which was followed by the Conservative Party governing alone from 2015.

I have been thinking about what this means for the Islamic finance industry, not just in the UK, but also globally.

As an example of the UK’s global influence, I recall that when I presented on Islamic finance at the Indonesian Central Bank in 2009, an Indonesian official commented that, despite being a Muslim minority country, the UK had eliminated the double real estate transfer tax on Shariah compliant property finance, which Indonesia had not yet done. Indeed, several countries have copied from the UK when writing their Islamic finance legislation.

The previous Labour Party government that was in office 1997 – 2010 created the UK legislative framework for Islamic finance starting from a clean sheet. Until then, the UK had no tax, or regulatory, provisions to facilitate Islamic finance. The main provisions eliminated double real estate transfer tax on Shariah compliant property finance, and created clear rules for murabaha, mudharabah, wakala, diminishing musharaka, and sukuk. This made it possible to operate Islamic banks in the UK, and for UK companies to issue sukuk.

Since the groundwork had been done, any developments by the Conservative led governments from 2010 onwards would inevitably have been less significant. However, even with that allowance, I regard the progress as pitiful. Apart from some minor legislative tidying up, the only significant developments that come to mind are:

• The UK issuing a £200 million sovereign sukuk in June 2014 for a five-year term. Nearly two years after it was redeemed in June 2019, the UK made a second five-year sukuk issue in April 2021.
• The Bank of England has introduced a facility for taking Shariah compliant “deposits” to provide a place for Islamic banks to securely hold their liquidity buffers.
• Civil servants have been thinking about Shariah compliant student finance since 2011. Prime Minister David Cameron said in 2013 that the government would introduce it. A scheme using takaful has been worked up and consulted on. However, it has still not been implemented.
• After many years of lobbying, consultation has taken place on eliminating the capital gains tax charge on Shariah compliant refinancing of commercial real estate, but there has been no announcement yet of any legislative action.

My expectation is that a Labour government will take Islamic finance far more seriously than the Conservative Party has during the 2010-2024 period.

My reasons are:

• the Labour Party’s focus on growth and promoting inward investment,
• greater support amongst Muslim voters (hence more impetus behind Shariah compliant student finance), and
• there being many more Labour Muslim Members of Parliament than Conservatives.

Accordingly, I expect the Labour Party to be much more willing to make improvements in the legislation if suggested by the Islamic finance industry.

Full disclosure: I was a Conservative Party member from 1983 to July 2019, and since October 2019 have been a member of the Liberal Democrats.

Mohammed Amin is an Islamic finance consultant and former tax partner at PwC in the UK.

Supplement: Review of my 2019 forecast

While composing this page, I remembered that I had made a forecast just after the 2019 general election "What does the UK general election result portend for Islamic finance?"

That article concluded:

"To summarise, I do not expect the government to do anything to directly harm the UK Islamic financial services industry. However, the long-term consequence of leaving the EU will be to weaken the industry by reducing the available international market."

I think both predictions proved correct.

The Conservative government under Prime Ministers Boris Johnson, Liz Truss, and Rishi Sunak, did not make any changes directed against Islamic finance. However they also displayed no real interest in making any changes to advance the industry.

UK financial services generally, which obviously includes Islamic finance, face severe problems when it comes to business within the EU. We can see the effect in the lack of any real growth in UK Islamic investment banking, whereas domestically focused business, for example home purchase finance, has continued to grow.