A guaranteed hung parliament. That seemed to be the message that the United Kingdom was getting loud and clear as we approached May’s General Election. Rather than ‘who will win the election?’ all of the talk was ‘who will buddy up with who to try to gain a majority?’ And yet, on Friday 8th May, the Conservatives defied all expectations to be re-elected to serve a second term. Nick Robinson, the BBC’s political editor, summarised: “no pollster, no pundit, no political leader saw it coming – not even David Cameron himself. Governing parties don’t gain seats. Parties that have implemented painful cuts and are promising more certainly don’t. Until, that is, the Conservative party did – achieving what had seemed to be Mission Impossible.”
So with the Conservative Government re-elected, what can we expect to happen to the money in our pocket? Here’s three things we can draw from the result:
The 2015 Budget is here to stay…maybe
The thing about announcing a budget before a General Election is this: if an opposing party gets into power, there’s no guarantee that they’ll want to follow through with the proposals made. Ed Miliband wanted an emergency budget within 100 days, while Nick Clegg wanted it within 50. This time around, it appears to be a little more straight-forward. A coalition Government, led by the Conservatives, put together the Budget. The benefits for savers, the pension freedoms, and the more flexible ISAs are all therefore likely to go ahead – great news if you’re currently in savings mode. That said, after being elected to Downing Street in 2010, George Osborne held an emergency budget just a few weeks later. Having returned to Number 11 without the need to run anything by the Liberal Democrats, the opportunity is there to push through an all-Conservative budget. If only we had a crystal ball…
Good news if you’re on a lower income…
The Tories outlined several principles in their manifesto to help people on low incomes. Firstly, they set out plans to raise the income tax threshold to £12,500. This goes hand-in-hand with their pledge to legislate so that nobody working 30 hours a week on the minimum wage pays income tax on what they earn. Middle earners will also receive a boost, with the 40% income tax threshold set to be raised, meaning that nobody earning under £50,000 will pay it. And everyone is set to benefit from guarantees to not raise VAT, national insurance or income tax.
…but worse news if you’re a higher earner
Not disastrous news by any means, but the Tories have previously outlined plans to cut tax relief on pension contributions for anyone earning more than £150,000, which means this could be in place sooner rather than later. And of course, all of the friendly tax news for lower earners has to come from somewhere. Could it be from higher earners? Well, possibly. Which means taking advantage of tax-efficient savings vehicles like ISAs and pensions becomes even more time-sensitive.
One place the money will definitely come from is via a crackdown on tax evasion and aggressive tax avoidance, with the Tories promising that ‘those who can afford to pay the most do’. That’s different to sensible tax planning, of course, which is definitely something to consider.
It’s not all bad news though, as shortly after the confirmation of the Conservative Government, the stock market reacted positively and the Pound surged to its highest level against the dollar for three months. If you’re a high earner who happens to be an investor, the short term boost would have been welcome.
It ain’t just about tax
There was more positive news in the Tory manifesto covering a range of economic policies. 200,000 starter homes for first time buyers under the age of 40, to be sold at 20% below the market rate. The Help-to-buy ISA that we covered recently. An increased inheritance tax threshold for married couples and civil partners to £1m.
Of course, there’s always the question of ‘what might have been?’ where rival parties are concerned. Labour outlined similar pledges to freeze VAT, national insurance and the basic rates of income tax, but wanted to reintroduce the 50% income tax rate for people earning over £150k, and introduce a ‘mansion tax’ on houses worth over £2m. The Lib Dems wanted to focus on taxing big corporates, as well as the banks. UKIP wanted to increase the personal tax allowance even more, up to £13,500, while scrapping inheritance tax and introducing a new 30% tax bracket for those earning between £45,300 and £55,000. Even though these ideas are mostly off the table for now, the good ones will hopefully keep being raised for discussion.
In the meantime, it’s all eyes on Number 11 to see if the famous red briefcase will make an emergency appearance…
This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
The value of investments can fall as well as rise. You may not get back what you invest.
GreenSky Wealth Limited is authorised and regulated by the Financial Conduct Authority. FCA No. 629624. Registered Office as above. Registered in England and Wales, Company No. 07103441. The Financial Conduct Authority does not regulate Tax Advice or Estate Planning.