In three weeks’ time, voters will take to the polls to elect a new government, which could have a significant impact on your personal finances. In this article, we take a closer look at what those changes might be, so you can stay informed and safeguard your cash.
1. Still time for savers to secure best rates
It was widely predicted that the Bank of England would cut the base rate in the summer. But this is now looking less likely, as recent reports suggest the BoE won’t want its decision to be politicised.
The BoE aims to remain neutral and avoid any political involvement. Lowering the base rate just before an election could be seen as trying to support the current government. This is good news for savers, who still have an opportunity to take advantage of high interest rates.
If you have cash savings that you don’t need to spend for at least a few months, it opens up a bigger window of opportunity to lock in a competitive rate on a savings account.
But things can change fast, and it doesn’t pay to get complacent. So it’s worth securing rates that outpace inflation while they’re still around.
2. Positive news for pensioners
In welcome news for pensioners, both the Conservative and Labour parties have committed to keeping the triple-lock on the State Pension. This ensures the State Pension rises each year by average wage growth, inflation, or 2.5% – whichever is highest.
The Conservatives promise they’ll increase the tax-free Personal Allowance for pensioners with a ‘triple lock plus’. This would ensure that your allowance rises each year by 2.5%, in line with the State Pension. The standard Personal Allowance for the current tax year is £12,570, which is the amount of income you don’t have to pay tax on.
The Labour party have recently backtracked on their decision to bring back the Lifetime Allowance – the total amount you can save in your pension fund without being taxed. This was abolished in 2023 by the current government. The Shadow Chancellor Rachel Reeve reportedly dropped the proposal as it would add uncertainty for savers and be complex to reintroduce.
All eyes will be on the State Pension age, which is due to be independently reviewed after the election. The State Pension age is currently 66, and is due to increase to 67 by 2028, and 68 by 2046.
Read more: Retirement tax planning guide
3. Simplifying tax-free savings
Currently, there are many different versions of tax-free savings accounts, including the Lifetime ISA, cash ISA, and stocks and shares ISA. However, both major political parties have indicated that changes could be on the horizon.
Labour plans to simplify the ISA landscape. The party aims to make it easier for people to invest by reducing the complexity of the current system. This move could consolidate the many types of ISAs into a more straightforward offering, making it easier to track and manage your savings and investments.
Both parties have shown support for the introduction of a new British ISA, which Chancellor Jeremy Hunt announced in the recent Autumn Statement. This ISA would offer a separate £5,000 allowance on top of the existing £20,000 annual ISA limit.
4. The tax landscape
Taxes are essential for funding the services and benefits that society relies on, such as the NHS, State Pension, and education. Striking the right balance between taxing the public and funding these critical areas is a continuous challenge.
Understanding the impact of proposed fiscal policies is important for savers. Changes in tax rates, allowances, or government spending can affect disposable income, investment returns, and the cost of living.
Both main parties have pledged not to raise Income Tax, National Insurance, or VAT.
Noteworthy statements include the Conservatives considering cuts to Inheritance Tax, though they’ve yet to confirm any changes. They’ve also pledged to not increase Capital Gains Tax because they ‘want to encourage people to earn and to save.’
Both parties are yet to launch their formal manifestos. But, once these are made available, they’ll offer clearer insights into each party’s proposed tax policies. Seeking advice from a Financial Adviser can help you navigate the uncertainties, and make informed decisions on your personal tax affairs.
Learn more: How to choose the right Financial Adviser
5. VAT on private school fees
The issue of school fees is a contentious one, particularly the VAT exemption for private schools.
Labour first pledged to end this exemption in its 2019 manifesto, and have reaffirmed this commitment. They said they would start charging VAT on private school fees from the first academic year after winning the General Election. The party says it needs the £1.6b it would raise to boost funding for state schools.
This policy could increase the cost of private school fees by 20%, unless schools choose to absorb the tax increase, which seems unlikely.
So, what does this mean for parents? The current average cost for a senior school pupil in a day school is about £17,500 a year. This would increase to about £21,000 a year if 20% VAT was added.
6. Navigating investment volatility
The stock market often experiences volatility around General Elections, which can impact investments. A decline in the stock market during this period could affect the value of ISA or pension investments in the short term.
Investing is a long-term endeavour, requiring discipline, patience, and the ability to manage risk. Despite potential short-term fluctuations, long-term investment strategies aim for higher returns over longer periods.
Investors need to prepare for these market dynamics, especially in the politically charged climate of an election year. It’s important to make decisions based on your personal risk tolerance and long-term financial goals.
A diversified portfolio is a key investment strategy used to minimise risk and combat economic volatility. It involves spreading your investments across different asset classes (such as cash, stocks, bonds, and property), industries, sectors, and regions. The aim of diversification is that, if one investment underperforms, your other assets can help to offset any losses.
Read more: Building a diversified portfolio
Frequently Asked Questions
When is the next General Election?
Prime Minister Rishi Sunak announced that the next General Election is taking place on Thursday 4 July 2024.
What happens after the General Election?
If the current government maintains the majority vote, they will remain in power and continue business as usual.
If a different party wins the majority of MPs (or ‘seats’), the current prime minister and government will resign. The King will ask the leader of the party with the highest number of MPs to assume the role of prime minister and form a government. The leader of the party with the second highest number of MPs becomes the head of the opposition.
If no party have enough seats to secure an overall majority, the result is a ‘hung parliament’.
The new Parliament will meet on Tuesday 09 July 2024, to elect a speaker, and officially swear-in the members. The State Opening of Parliament and The King’s Speech will take place on Wednesday 17 July 2024.
What is a hung parliament?
A hung parliament happens when no single political party secures enough seats to win control on its own. When this happens, the party with the most seats might form a coalition government with another party. It can create uncertainty about who will be the next Prime Minister and what policies will be put in place.
If parties can’t agree on forming a government, a new election might be called to try and break the impasse.