How The General Election Result Could Affect Your Finances

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As the general election approaches, the parties are setting out their plans for the economy. With just a few weeks to go, voters are keen to understand how proposed changes will affect their personal finances. From taxes and pensions to childcare and housing, these decisions are likely to have a significant impact on your wallet. This article delves into the potential financial shifts you might see depending on the election outcome.

 

Economy

There is little doubt the UK economy is in difficulty. A lack of economic growth, poor productivity, relatively high taxes and interest rates and a large national debt are putting the squeeze on public services and prosperity. So, what are the key policies to address this from the main parties?

The Conservatives aim to keep public sector borrowing below 3% of GDP by 2029-30, promise national broadband by 2030, faster infrastructure delivery, and no Corporation Tax increases. Labour prioritises wealth creation with ‘secure-onomics’, propose a £1.2bn windfall tax on oil and gas to fund the new ‘Great British Energy’, and a £7.3bn National Wealth Fund for clean energy. The Liberal Democrats focus on rebuilding EU relations and green infrastructure, while the Greens advocate £40bn annually for green investments and nationalising rail, water, and energy companies and. Reform are focused on reducing net migration, rolling back green initiatives along, cutting taxes and reducing public spending.

 

State Pension

One of the primary concerns for many, especially older voters, is the future of the State Pension. The ‘triple lock’, which ensures the State Pension increases annually by the highest of average earnings growth, inflation, or 2.5%, is a point of agreement for both the Conservatives and Labour. Both Rishi Sunak and Sir Keir Starmer have committed to maintaining this policy for the next five years.

The Conservatives have recently announced the ‘Triple Lock Plus’. This would see them increase the Income Tax ‘personal allowance’ for pensioners in line with future State Pension rises meaning those relying on just the State Pension would never pay Income Tax. Instead of making specific commitments, Labour plans to review the entire pension landscape to identify further steps needed for improving pension outcomes. The Liberal Democrats also back the triple lock and pledge to ensure fair treatment and compensation for older women affected by the equalisation of the pension age. Reform criticises the current pension system as overly complex, costly, and yielding poor returns, suggesting Australia’s model as a potential solution.

The State Pension retirement age could be a contentious issue post-election. Currently set at 66, with plans to rise to 67 by 2028 and 68 by 2046, there are calls to accelerate this timetable to reduce Treasury expenses. This topic, while not at the forefront of campaign discussions, remains a critical area for future financial planning.

 

Other Pensions

Both main parties have now stated they will not be reintroducing the ‘lifetime allowance’ – a limit on the amount you can save into your pension without facing a tax penalty. This cap was abolished in April this year.

In 2023, the Conservative government unveiled plans to enhance auto-enrolment reforms, aiming to increase total pension contributions by £45 billion over the next 30 years. Part of this plan includes removing the ‘lower earnings limit’ for minimum contributions, ensuring more workers benefit from pension savings. Moreover, the government proposed lowering the minimum age for auto-enrolment eligibility from 22 to 18, allowing younger workers to start saving for their pensions earlier. The Labour Party also supports the expansion of auto-enrolment. They were instrumental in developing the original auto-enrolment legislation under the Pensions Act 2008, which was later implemented by the coalition government.

With an estimated £27 billion of pension funds disconnected from their owners, addressing ‘lost’ pensions is expected to be a priority for the next government. The introduction of the ‘Pensions Dashboard’ (scheduled for 2026) will help individuals track their retirement savings online, making it easier to consolidate and manage pensions. However, like with most large government IT projects, there are continuing concerns about the timescale and cost of this project.

 

Taxation

Personal tax has become a major divide between the main parties. The Conservatives promise £17bn in cuts, while Labour plans £8.6bn in targeted tax hikes to fund their spending.

The Conservatives aim to cut National Insurance (NI) by 2 percentage points to 6% and abolish Class 4 NI for the self-employed, with a long-term goal of ending NI altogether. They promise no rise in Income Tax or VAT in the next parliament, though freezing tax thresholds until 2028 will push more people into higher bands. This is known as ‘fiscal drag’ and is already causing the overall tax burden to rise significantly as higher levels of inflation and earnings persist.

Labour’s tax strategy includes closing ‘non-dom’ tax loopholes to raise £5.2bn annually, applying VAT and business rates to private school fees to raise an extra £1.5bn, and eliminating the private equity ‘carried interest’ loophole for £565m. They rule out hikes in Income Tax, NI, and VAT but some commentators suggest they may consider changes to Capital Gains Tax (CGT) and pension tax relief.

Meanwhile, Nigel Farage’s Reform manifesto offers a £20,000 Income Tax threshold, no higher rate tax under £70,000, lower Fuel Duty, and zero Stamp Duty on homes under £750,000. Inheritance Tax would drop to 20% on estates over £2m. Despite these tax promises, there remain significant unanswered questions about how Reform would balance the books and which public services would be cut. The Greens propose a 1% ‘wealth tax’ on assets above £10m, align CGT rates with Income Tax, and eliminate the NI upper earnings limit.

 

ISAs

The creation of a ‘British ISA’, announced in the last budget, has been delayed pending further consultation. This initiative would allow tax-free investments of up to £5,000 annually in UK stocks. Labour has also indicated plans to simplify the current ISA system, which could provide clearer, more efficient savings options for the public. It remains to be seen whether this new ISA ever sees the light of day or whether the plan is quietly shelved.

 

Benefits

Universal Credit and other benefits are set for significant changes this year. Both Conservatives and Labour aim to reform the benefits system to balance support with encouraging employment. A major overhaul of Personal Independence Payment (PIP) is in the works, potentially replacing cash payments with vouchers. The Prime Minister emphasised engaging individuals with less severe mental health conditions in the workforce. Labour proposes allowing sickness benefit claimants to return to benefits if they can’t continue working, reducing the risk of losing support.

Both parties aim to cap benefits payments and encourage employment, agreeing that the PIP system needs significant reforms. Labour may also look at removing the two-child benefit cap although they have yet to commit to this policy.

 

Property

Beyond taxes and pensions, few issues stir voters more than the housing market. Each major party has bold plans for property.

With only 2.5 million homes built since 2010, the pledge to construct 1.6 million more in the next parliament is ambitious. To ease access to homeownership, the Conservatives propose making the £425,000 first-time buyer Stamp Duty threshold permanent and enhancing the Help to Buy scheme. Leaseholders will see ground rents capped at £250, aiming to reduce them to a nominal amount over time.

Labour’s promise to build 1.5 million homes aligns closely with the Conservative goal. They vow to protect the green belt and introduce a mortgage guarantee scheme to help first-time buyers with deposits. Additionally, the stamp duty surcharge for non-UK residents will be increased.

The Liberal Democrats plan to outpace both Tories and Labour, aiming for 380,000 new homes annually, including 150,000 social homes via 10 new ‘garden cities’. They propose abolishing residential leaseholds and capping ground rents at a nominal level. Reform seeks to reverse the 2019 tax changes that deterred buy-to-let investments and will fast-track planning for brownfield site developments.

 

Childcare

Childcare costs are a significant burden for many families. The Conservatives’ expansion of free childcare to all children under five in England aims to alleviate some of these costs, potentially saving parents up to £3,500 annually.

Labour has pledged to create over 100,000 new nursery places for children from nine months old, aiming to improve standards and meet rising demand as a key promise for working parents. The party plans to establish more than 3,300 new nurseries in existing primary schools across England to support this significant expansion of childcare.

Despite the promises from all parties on Childcare, plans may be more difficult to enact in reality. With continued staffing shortages and funding issues, this will be a difficult area of policy to address whichever party is in power after the election.

 

Stock Market Volatility

Stock markets often experience volatility around general elections, especially with unexpected results. Such outcomes can cause short-term drops as traders assess the situation. Predictable results tend to stabilise markets, as seen with the 1997 Labour victory.

Election-related market dips can affect investments like ISAs and pensions, but recovery typically occurs within months. For instance, after the 2010 UK general election resulted in a hung parliament, the FTSE All-Share index fell 3% but rebounded with the formation of a coalition, rising nearly 10% within six months. In the longer-term, economic and inflation trends generally have a more significant impact on market returns than election outcomes.

 

Summary

As the upcoming election approaches, the parties have unveiled their key economic plans, which could significantly impact your personal finances. From taxes and pensions to childcare and housing, there are likely to be some big financial shifts based on the election outcome.

The UK economy is facing challenges with slow growth, high taxes, and a large national debt. Key party policies include the Conservatives’ promise to keep borrowing below 3% of GDP and reduce some taxes, Labour’s focus on wealth creation and public services, the Liberal Democrats’ emphasis on EU relations and green infrastructure, the Greens’ push for substantial green investment and Reform focusing on immigration and low taxes. Additionally, all parties are addressing State Pensions, tax policies, housing markets, and childcare costs, highlighting the critical financial issues at stake in this election.

Staying informed about these proposals will help you understand how the election results could impact your wallet and financial future.

 

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.

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