What does Labour’s election win mean for your financial plan?

It’s all change at the top. After a landslide win in the UK general election, there’s a new party in charge. So what kind of policies are we likely to see from the new Prime Minister? And what does it... Read more

Photo of Ian Campbell, Head of Financial planning

Blog8th Jul 2024

By Ian Campbell

It’s all change at the top. After a landslide win in the UK general election, there’s a new party in charge. So what kind of policies are we likely to see from the new Prime Minister? And what does it mean for your financial plans?

Landslide – but no earthquake

Perhaps the most surprising aspect of Labour’s resounding victory, was the lack of surprise.

There was certainly plenty of election night drama, as the Conservatives (and SNP in Scotland) lost out to a red wave of new MPs. But the final result also had an aura of predictability about it. Labour led in the opinion polls from as far back as December 2022 and never looked back.

As this New Zealand broadcaster’s report summed up the day after the election “the change in power has appeared inevitable for months, if not years.” The big reveal was that she’d actually filmed the clip weeks before and by the time it aired, she’d already flown the 11,000 miles back home.

This predictability, combined with a cautious campaign that was light on anything likely to scare voters, has meant the outcome has only caused mere ripples in financial markets. UK stocks and the pound initially rose slightly the day after.

The next steps

So, after the big win, what now?

“Changing a country is not like flicking a switch”, said Keir Starmer in his first speech as Prime Minister.

Nevertheless, change will come (they wrote it on the side of a bus). And Labour’s promises – which include renationalising passenger rail, setting up a new state-owned energy company and investing more in public services – will need revenue from somewhere. How much of that is going to come from us, the taxpayer?

Throughout the campaign, the accusation thrown at Labour was that they would be putting up taxes. We know some areas already. Plans for VAT for independent schools could mean higher school fees, while Labour also plans to close all loopholes around non-dom status.

Elsewhere, there’s been speculation the new government could raise Capital Gains Tax (CGT), while income tax thresholds are likely to be frozen until April 2028 – which would be likely to see more taxpayers move up a tax bracket as wages increase. Our Private Client tax colleagues have touched on some of the changes we already know about in their latest article which can be read here.

There are other areas that we can probably discount as ‘noise’ – the kind of claims that hit the headlines and are in people’s minds, but don’t go anywhere. Inheritance tax, for example; this hasn’t increased since 2009, but is always likely to come into the conversation when discussing potential changes. Labour had also previously mooted undoing the previous government’s decision to scrap the Lifetime Allowance, but later ruled this change out.

The good news though: we have time until any of these substantial changes are announced. The new chancellor Rachel Reeves has already ruled out holding a budget that doesn’t include forecasts from the Office of Budget Responsibility. These take 10 weeks to commission – so Labour will have to wait until the autumn to set out major spending plans.

Adapting to change

We’ll be keeping a close eye on what the new government says and does over the next weeks and months – and will update you when there’s anything that will affect you and your finances.

But the truth is, whatever changes Labour has in mind, the key is flexibility. A good financial plan is never truly set. The important thing is that it can be optimised, in line with the ebb and flow of government regulation.

In the last 10 years, we’ve had significant areas of reform to contend with on behalf of our clients. Among the most notable was the George Osborne’s pension freedoms, introduced in 2015, which provided more freedom and choice over how you access your pension pots. However, these choices didn’t come without risk. We’ve since helped clients to optimise this freedom and avoid excessive taxes on any income received.

More recently, the tax-free allowance for CGT has been cut dramatically – from £12,300 two years ago to just £3,000 in the last budget. Meanwhile, the dividend allowance has also been sliced.

What happens if these are reduced further? If you’ve got £100,000 in the bank and another £150,000 in something like an investment fund, it won’t take a lot for that money to be hit with dividend taxes or CGT. It makes using tax wrappers such as ISAs  even more important.

Working with a financial planner can really help minimise any impact. A planner will always be working proactively behind the scenes, joining the dots to give you maximum optimisation.

Cutting out the noise

As we’ve said previously, we’re careful to advise our clients not to panic during election time. It’s important to filter out the noise. So take all the headlines and rumours over what taxes the new government may or may not be putting up with a pinch of salt for now.

It does appear that the next few months could see a relatively stable backdrop politically. Plus, there’s the potential for falling inflation and possible interest rate cuts, which are positive for the economy – and the pound in your pocket.

Of course, no one knows what lies ahead for sure. So even if it’s not plain sailing, we’re there to support you – through accumulation as you gather wealth during your career – and decumulation as you move into retirement.

Labour’s big slogan for the election was ‘change’. No matter what changes are introduced, we’ll make sure you’re ready.

SPEAK TO US TODAY ABOUT YOUR FINANCIAL PLANNING.

By Ian Campbell

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