The general election is fast approaching. What could each party’s win mean for your personal finances? We have put together a brief guide on their manifestos to see how the existing government and their main challenger may approach personal finance over the course of the next parliament.
Prime Minister Rishi Sunak recently announced a sudden snap election for the 4th July. This took many by surprise, having expected him to wait until the Autumn. Nevertheless, we now have an election on our hands, which gives us a lot of things to think about. This article will consider the implications that a win by each party could have on our finances as well what we should do with our finances in the run up to the election.

The Labour Party

Labour is currently the favourite to win the election, with polling giving them a 20% or so lead over the Conservatives, shaping up to have a significant majority. They have recently released their manifesto for this election and given they are looking increasingly likely to pull off a landslide, what could that mean for your wallet?

Keir Starmer’s party has pledged to run a tight ship, looking to close tax loopholes and reforming pensions, while seeking to adequately fund its social and environmental policies. Notably, many of measures expected in the manifesto didn’t arise, for instance, a pledge to ‘simplify the ISA landscape’ as well as a bid to reform pension allowances. However, a number of other policies have been set out.

1. Tax

Firstly, tax has taken centre stage in the election campaign, despite the claims made by the Conservatives about Labour plans to increase taxes on families by £2,000. Labour has insisted that this isn’t the case, having pledged not to increase income tax, National Insurance or VAT. Nevertheless, one should note, taxes will inevitably rise, whichever party comes into power at the next government, due to neither committing to unfreezing tax thresholds.

However, Labour has set out several tax-related policies for how it plans to raise its funds. For instance, they have pledged to fully abolish non-dom status. Current Chancellor Jeremy Hunt had already planned to do this in his Spring Budget earlier this year, however, with concessions to allow current non-doms to rearrange their finances before a deadline of April 2025. Labour is planning on closing the loopholes in the Chancellor’s plan for non-doms, raising a further £1 billion.

Other things of note include a plan to freeze corporation tax at 25% for the next Parliament, looking to ensure ‘certainty’ among investors, and there is also a possibility they make changes to inheritance tax and capital gains tax, which will have far reaching consequences.

2. Private Schools VAT

Labour is also looking to impose VAT taxes on private schools, removing their special tax-break status to raise further funds to support state schools and recruiting 6,500 new teachers. This will most likely lead to higher school fees, increasing by around 20%, with some independent schools already raising their fees ahead of a probable Labour victory. Labour hopes this will raise around £1.5 billion. When this policy would come into force, however, is still unclear. The Shadow Chancellor Rachel Reeves has ruled out a new budget following the election, meaning many parents and school administrators are unclear as to whether the new policy would affect the coming school year in September. The effects of the policy remain to be seen, with many warning of a mass flight of pupils from the private to the state sector due to rising fees. Yet this isn’t necessarily set in stone with the Guardian reporting that private schools pupil numbers have actually increased despite the announcement.

3. Pensions

Despite avid speculation, the manifesto is relatively sparse on the topic of pensions. The Lifetime Allowance (LTA) was a topic where many thought Labour would provide some significant reform. Many changes have been enforced recently and more may be likely to come, with investors saying they want clarity on the issue. Jonathan Hives, Chief Executive of First Sentinel Wealth recently said in the Financial Times that it would be extraordinary for a new government to reintroduce the measure so soon after the previous one abolished it. Labour have said previously that they plan to reintroduce the LTA, however it was absent in the manifesto and now seems like it won’t be part of any pension reforms they bring in.

Further, Starmer has committed Labour to retaining the pension triple lock for the duration of the next government. This refers to a process whereby the state pension will rise in line with whatever is highest out of inflation, average earnings or 2.5%. Worries about the government’s ability to secure this have been apparent recently, especially since pension recently increased by 8.5% in line with inflation. However, writing in the Express in April, Starmer explained he is ‘guaranteeing that the pensions triple lock will be in the Labour manifesto’.

Finally, there are plans to reform the workplace pension landscape. These include ensuring a proportion of all pension schemes are invested in UK industry, modelled on the French equivalent scheme. This is part of Labour’s aim of wealth creation, seeking to incentivise investment and growth into the UK.

4. Property

Finally, in terms of property, Labour have quite a large agenda including the following pledges:

  • Building 1.5 million homes by the end of the next Parliament looking to help reduce property prices.
  • Bolstering the Freedom-to-Buy scheme, looking to get more young people on the housing ladder. In order to fund this, it intends to increase stamp duty on foreign buyers.
  • Reforming the current leasehold system. It plans to remove s.21 no-fault evictions, while also strengthening renter’s rights in terms of requiring landlords to investigate reports of damp and mould within a certain timeframe.
  • Overhauling the long-leasehold system, looking to institute the commonhold as the default. This line of legislation was already being implemented by the Conservative government with the Leasehold and Freehold Reform Act being the final piece of legislation making it through Parliament before the election announcement. However, Labour wants to extend this further, with many issues with leaseholds not having been sufficiently addressed in that Act.

Further Labour policies include:

  • The renationalisation of passenger rail companies, looking to take over as contracts with providers run out.
  • The creation of Great British Energy, a new nationalised clean-energy company, which Labour hopes will aid in hitting the net-zero target by 2030, as well as reducing energy bills.

The Conservative Party

How does the incumbent compare, as to their financial policies. The Tories have now been in power for 14 years, meaning they have had a lot of time to impact legislation and financial policy. Nevertheless, they have an array of new policies that they plan to roll out in the event of their re-election.

1. Pensions

In terms of pensions, the Tories have committed themselves to the triple lock, taking this even further than Labour by announcing what is being touted the ‘Triple Lock Plus’. This refers to a tax cut being given to pensioners by increasing their tax-free personal allowance. Currently, the maximum amount you can get from the state pension is £11,500, while the tax-free personal allowance is £12,570. For pensioners who have an additional income to their state pension, they will find themselves paying taxes on anything that exceeds that personal allowance. What the Conservatives are proposing is that the personal allowance for pensioners rises in line with the triple lock each year, i.e. by 2.5%, inflation or average wages. It would provide pensioners with a tax cut worth £275 by the end of the decade.

This policy has proved controversial. Some have welcomed it, especially amid worries about frozen income tax thresholds. At the current rate, with income tax remaining frozen while the state pension continues to increase, pensioners may find themselves paying tax on their state pension by 2027. The policy has attracted a lot of criticism, however. Tom Selby, director of public policy at AJ Bell has said that not applying the increase to younger voters as well would be ‘driving a wedge between generations via the tax system’, while also likely forcing the state pension age to rise faster to cope with the costs of the new triple lock. It will also be an expensive policy, this tax-break likely to cost £2.4 billion by the end of the decade.

2. National Insurance

Finally, Jeremy Hunt has vowed to continue to cut national insurance, looking to eventually scrap it completely. It has already been reduced twice in the last Autumn and Spring Budgets, with these tax cuts hoping to win over voters by putting more money in their pockets. However, this has attracted criticism. It has been noted, that in reality the idea of abolishing national insurance won’t be achieved in the next government term, but would take decades to realise. Further, it is unclear how these cuts are to be funded, with Danni Hewson, Head of Financial Analysis at AJ Bell explaining that ‘further tax cuts may be a vote winner but figuring out how to pay for them is surely the bigger issue on the table.’

3. Property

A number of policies are on the agenda if the Tories are re-elected. Notably, it is planned for 1.6 million new homes to be built, 100,000 more than Labour. It is also planning a number of policies to help first-time buyers (FTB) including making the current FTB stamp duty thresholds permanent. This would mean that FTB are exempt from stamp duty for properties worth up to £425,000. The party also plans to launch a new Help-to-Buy scheme for FTB, which would see the government offering up to 20% towards the cost of a new-build, meaning buyers will only need a deposit of 5%.

The Conservatives, otherwise, being the incumbents, are more focussed on advancing their current agenda. Rishi Sunak had set out his 5 pledges when elected by the Conservative members in 2022 and will likely continue to focus on these targets. The election announcement has taken many by surprise, overshadowing successes in inflation policy, with this now being down to 2%. This impact hasn’t been apparent for very long, however, having not yet translated into people’s daily lives, with prices and mortgage rates still high.

Economic policy is likely to be a crucial topic for this election. Many individuals and businesses have found themselves struggling over the last few years with austerity, COVID-19 and the cost-of-living crisis. While the parties may try to win voters over with social policies, whether through the introduction of national service, or questions about immigration, what will really count this time around is who has the best economic agenda, who can bring down prices and increase wages and who can get the Freddo back down to 10p.

What to do now?

Fiscal and financial policy is always the cornerstone of every election campaign. It influences how the government organises its agendas, funds its policies and departments and how we organise our own finances around that. Each party may change the rules coming into office to supplement its agenda. This means some current measures may be gone with a new government. A prime example is pensions, each party has different pledges as to their pension agenda.

Whilst a lot remains uncertain, we know the current rules and expect they will apply for the remaining tax year, so it’s always worth looking at what options you have to take advantage of existing policies while they last.

A few things you can do to secure your finances before the general election, in case of drastic financial reform:

  1. Make sure to use up your ISA allowances.
    Your Individual Savings Account (ISA) allowance is currently £20,000 per year per person. Using this up could be beneficial in the event of a Labour win. Labour, as mentioned before, may be considering to ‘simplify the ISA landscape’, this having been a major talking point prior to the release of the manifesto, meaning that big changes could be on their way. This could include changes to allowances, types of ISAs etc. As such, using up your ISA allowance is a safe step to take to ensure you’ve put away that £20,000 for this tax year.
  2. Utilise your pension allowances.
    Another thing to consider is using up your pension allowances as much as you can. There is uncertainty about what each party plans to do with these if they are elected. Pension allowances, similar to ISAs were major talking points prior to the release of the manifestos which didn’t end up being addressed therein. A safe bet to make sure you aren’t affected by any possible major policy changes.

These are measures that can’t hurt. If Labour drastically change the ISA and pension landscapes, you’ve already used up your allowances and made the most of your tax relief for the year. If they come in and decide against these measures or take a different approach, you will at least have reduced your tax-year end responsibilities.

We are still a few weeks away from an election and a lot can change in that time. Only once the 4th July has passed and we know who is going to be living in No. 10 can we have clearer idea of how the next government will approach personal finances.

Talk to one of our expert financial advisors today, to discuss your personal finances.

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What the general election result can mean for your personal finances