What will Conservatives’ policies do for your personal finances?

by Kyle Caldwell from Money Observer |

We examine key implications for the nation’s personal finances relating to tax, pensions, and adult social care in the wake of the Tories’ election win.

Boris Johnson’s Conservative Party has won a majority - the largest Tory majority since 1987 - following the UK general election.

Below, we round up key implications for the nation’s personal finances.

Income tax cuts for £50,000 to £80,000 absent

During the Conservative Party leadership race, Johnson promised to reduce Britain’s tax burden, most prominently claiming that he would raise the threshold for the 40% higher-rate income tax from £50,000 to £80,000.

That would benefit roughly four million people, giving £9 billion back to taxpayers. But the pledge, which according to the Institute for Fiscal Studies would benefit roughly the top 10% of earners, has been dropped, at least for now.

Increase of national insurance threshold

There are, though, tax cuts in the form of a rise in the threshold for national insurance contributions (NICs) from £8,632 to £9,500. This will equate to a saving of around £100 a year for 31 million workers who earn above that amount.

Longer term, the Conservative Party describes rising the NICs threshold to £12,500 as its “ultimate ambition”. This would result in a tax cut of £500 for workers who earn more than £12,500.

There may be unintended consequences for some, points out Steven Cameron, pensions director at Aegon. He notes:

“This will be welcomed by many as a boost to take-home pay. However, under current rules, those not paying any NI lose out on credits towards their state pension. Individuals need 35 years of qualifying NICs to receive the full state pension with those with fewer qualifying years seeing a reduction and receive none if they have fewer than 10 years of credits.”

State pension triple lock

No surprises here: the state pension triple lock has been maintained.

Any reform of the state pension triple lock would prove unpopular with voters, as Theresa May knows all too well. During the 2017 general election, May toyed with the idea of tweaking the triple lock to make it less generous. The triple lock is widely viewed as an expensive policy for any government to maintain, but May was forced to shelve plans after failing to secure a majority.

Under the triple lock, first introduced in 2010 by the Conservative/Liberal Democrat coalition government, the state pension increases each year by the highest of three measures: inflation, the average earnings increase, or 2.5%.

In the manifesto the Tories say:

“The ‘triple lock’ we introduced has meant that those who have worked hard and put in for decades can be confident that the state will be there to support them when they need it. We will keep the triple lock, the winter fuel payment, the older person’s bus pass and other pensioner benefits.”

On this front the Conservative Party manifesto’s pension commitments are in line with Labour’s, which has also pledged to retain the state pension triple lock.

Other pension pledges

While the Labour Party pledged to compensate women born in the 1950s for the failure of the government to adequately notify them about changes in the state pension age, the Conservative Party did not make it a policy pledge.

When questioned on the issue by an audience member during the BBC Question Time debate, Johnson said he “sympathises deeply with the position of the Waspi women”, but added that he “cannot promise that I can magic that money for you tonight”.

Labour’s pledge to compensate nearly four million women was estimated to cost £58 billion over five years. It was unclear how the Labour Party would fund this enormous compensation package.   

Aegon’s Cameron adds:

“The biggest difference (in pension commitments), and it’s a massive £58 billion difference, relates to the Waspi women who found their state pension age increase from 60 to 66 without clear, personalised advance notice. The Tories are not matching Labour’s commitment to compensate them.”

Elsewhere on the pensions front, the government announced recently that it would respond to the ‘taper tax’ issue affecting doctors by covering their annual allowance tax charges for 2019/20. 

A separate pension anomaly the Conservative Party is also seeking to address is the quirk which can result in workers earning under £12,500 missing out on pension tax relief if their scheme or provider uses the ‘net pay arrangement’ method of delivering tax relief, rather than the ‘relief at source’ method.

Steve Webb, director of policy at Royal London, welcomes both developments, but is critical of the “disappointing lack of detail”. He says: “‘It is welcome that the Conservative manifesto refers to two of the various anomalies in the pension tax relief system.  On low-paid workers, the manifesto represents a welcome shift in position after the government has refused to act for several years. 

“But on the tapered annual allowance, the measure proposed is far too narrow and may not even work.  The tapered annual allowance affects far more people than senior NHS clinicians and creates complexity and uncertainty in the tax system.  The best solution would be to abolish it outright.”

Adult social care

On the social care front, details were also lacking, with little more than a guiding principle that no one will have to sell their home to pay for care. There were no concrete proposals regarding how the social care crisis will be solved long term.

In the manifesto, the Conservative Party said it is committing to £1 billion of extra funding a year for social care, a commitment to seek cross-party consensus for long term reform and “the prerequisite of any solution will be a guarantee that no one needing care has to sell their home to pay for it”.

This article was first published on 25 November and updated after the election result on 13 December.

This article was originally published in our sister magazine Money Observer. Click here to subscribe.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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