A general election has been announced by Prime Minister Rishi Sunak for 4 July. Here, we highlight five personal finance areas Labour and the Conservatives are likely to focus on ahead of the upcoming election campaign.
Pensions
The next government will have some big pensions decisions to take. The state pension triple lock is the most obvious - and one of the few things both parties have been crystal clear on so far, with both Rishi Sunak and Keir Starmer committing to the policy for the entirety of the next Parliament. The triple-lock guarantees the state pension rises by the highest of average earnings growth, inflation or 2.5%.
While neither party is likely to talk about it in their manifesto, it is possible planned state pension age increases will also come into focus for the next administration. The current state pension age is 66, with plans in place to raise this to 67 by 2028 and 68 by 2046. However, there have been calls from various quarters to accelerate that timetable in order to save the Treasury money.
Also on the agenda is the lifetime allowance – the limit on the amount someone can build up in their pension over their lifetime, which was abolished in April this year. Labour has stated it plans to reintroduce the lifetime allowance, although hasn’t laid out how it would do it.
Another area of focus could be the government’s flagship automatic enrolment reforms. Under auto-enrolment, employers are required to enrol eligible staff into a workplace pension scheme that meets certain minimum standards.
While those reforms have been successful in dramatically boosting the number of pension savers in the UK, there is agreement that current minimum contribution levels are insufficient to deliver a decent standard of living in retirement for most people.
A report into the reforms published in 2017 recommended lowering the minimum age for auto-enrolment from 22 to 18 and ditching the lower qualifying earnings band, although these recommendations have yet to be enacted. Given a future government is likely going to need to increase minimum contributions beyond even this level, implementing the 2017 recommendations is likely to be an early job for the next administration.
Tackling the problem of ‘lost’ pension pots is likely to be a big focus for the next government, with an estimated £27 billion of pensions money estimated to be sitting in accounts that have become disconnected from their owner. Losing track of your pensions can make it difficult to plan for retirement.
Proposed pensions dashboards should help make it easier for Brits to find lost pensions. The reforms, due to be introduced in 2026, will allow people to see all of their retirement pots in one place, online. Until then, there are tools out there that can help you locate your old pensions – including AJ Bell’s pension finder tool.
ISAs
The Conservatives have floated the idea of a UK ISA, which would give an additional £5,000 allowance for people to invest in UK companies. However, it would need the next Government’s support for it to see the light of day, putting the plans in doubt if there is a change in Government.
Labour has already said it will look to simplify the ISA landscape to make it as easy as possible for people to invest if it is elected to power. This is something that AJ Bell has campaigned for consistently over a number of years, calling for the creation of a single ‘One ISA’ product incorporating the best features of the existing six ISAs. As with all these areas, election manifestos will shed more light on each party’s stance.
Tax
A key battleground is likely to develop over the issue of taxation. For some, taxes need to rise in order to fund already-stretched public services. For others, ever-increasing tax bills are evidence that public spending is out of control and taxes need to be cut to incentivise growth.
The Conservatives will likely point to recent cuts to National Insurance as evidence of their commitment to reducing the tax burden, while Labour will argue that frozen tax thresholds mean we’re paying more tax via stealth methods.
In truth, there is very little wiggle room in either direction. Many taxpayers would struggle to stomach further tax increases, while tax cuts will eat into the future Chancellor’s budgets, which is crucial to any spending commitments either party plan on.
Housing and first-time buyers
The housing market is a key concern for many Brits. First-time buyers will want to see an extension to support helping them get a foot on the ladder, while existing homeowners will hope for policies that moderate inflation and increase the likelihood of interest rate cuts.
The Lifetime ISA is a key component of the current offering for aspiring homeowners, but is currently frozen in time. The property limit for the Lifetime ISA has remained stubbornly at £450,000 since its launch in April 2017. When the Lifetime ISA was launched the average UK house price was £219,000, but it has since shot up to just over £283,000*. If the Lifetime ISA limit had increased in line with those average house prices it would sit at £580,500 today – more than £130,000 higher.
Many aspiring homebuyers will have signed up to the accounts years ago, not realising that it would take so long to get on the property ladder and that they might fall foul of the property limit in the future. What makes the situation more galling for first-time buyers who have been priced out of using the Lifetime ISA is that they now face losing some of their own money when they withdraw their cash from the accounts, thanks to the onerous withdrawal penalty. Anyone who exceeds the £450,000 limit, even by just £1, will be hit with the 25% exit charge on the Lifetime ISA, as their purchase will no longer be within the rules.
Childcare
Childcare could prove a key battleground for both parties. The Conservatives have already extended the ‘free hours’ scheme for childcare to provide funding for pre-schoolers at nursery or childminders, all the major parties are likely to commit to seeing that through, even though the policy won’t be fully operational until September 2025.
Under the current scheme parents will receive the next tranche of government free childcare hours from September, providing a helpful boost to their finances. It’s essential that the next government keeps a close eye on the rollout and ensures that any wrinkles in the system are ironed out quickly.
But in addition to this, it’s possible we could see future pledges on support for parents, or even a complete overhaul of the current system. Currently parents can access free hours support for childcare, tax free childcare worth up to £2,000 to those earning under £100,000, and child benefit for those with earnings under £80,000. The latter is currently undergoing reform, with the government pledging to remove the current unfairness that can penalise single-earner households and instead moving to a system that considers a household’s joint income.
There’s a case for reforming the entire system, which provides a hotchpotch of different subsidies for parents that frustrates families, leaves nursery finance departments scratching their heads, and creates an extra admin burden for the tax office. It’s possible a future government could go back to the drawing board with a complete re-think on the way parents are supported with childcare and the cost of starting a family.
*Based on UK House Price Index
Disclaimer: These articles are for information purposes only and are not a personal recommendation or advice. How you're taxed will depend on your circ*mstances, and tax rules can change.
