How Will a Labour Government Impact my Finances?

“Although
Labour’s
manifesto
was
relatively
light
on
detail,
its
‘Plan
for
Growth’
document
published
in
January
provides
an
insight
into
what
the
key
areas
of
focus
are
likely
to
be
for
the
new
government,”
Tom
Selby,
director
of
public
policy
at
AJ
Bell
said
in
a
note.

So
what
will
Keir
Starmer –
and
his
chancellor
Rachel
Reeves –
do
next?

Mansion
House
Reforms:
Here
to
Stay

Among
their
priorities
could
be
a
review
of
UK
pensions
with
the
aim
of
unlocking
more
private
investment
in
UK
PLC.
That
means,
in
all
likeliness,
that
Jeremy
Hunt’s
“Mansion
House”
agenda
will
now
continue.

“According
to
Labour,
at
the
turn
of
the
century,
UK
pension
funds
and
insurers
held
39%
of
shares
listed
on
the
London
Stock
Exchange.
By
2020,
they
held
just
4%,”
Selby
said.

“Clearly
any
shift
in
asset
allocation
by
these
schemes
will
need
to
be
done
in
a
way
that
doesn’t
harm
members’
interests
but
given
the
amount
of
money
sloshing
around
in
defined
benefit
schemes,
even
relatively
small
changes
could
make
a
sizeable
difference
to
the
UK
economy.”

Mary
Cahani,
director
of
UK
pensions
at
Invesco,
also
agrees
Labour
is
unlikely
to
reverse
the
work
done
by
the
Conservative
Party
on
pension
reform.
That
said,
she
predicts
pension
taxation
will
return
to
the
spotlight
as
a
source
of
funding
for
other
government
policies.

“There
could
be
a
review
of
pension
tax
relief
or
annual
allowances
subject
to
such
relief.
However,
it
has
been
reported
that
Labour
has
ruled
out
reintroducing
the
Lifetime
Allowance
that
was
abolished
by
the
Conservatives
earlier
this
year,”
she
said
in
a
note.

“Another
option
could
be
to
review
the
tax-free
lump
sum,
but
this
might
not
be
received
well
by
the
public.”

According
to
pension
freedom
rules
set
up
by
the
coalition
government
in
2014,
savers
can
take
25%
of
any
private
pension
pot
as
a
tax-free
lump
sum.
It’s
a
system
that
has
proven
almost
universally
popular,
and
one
which
the
Labour
Party
under
Ed
Miliband
and
Jeremy
Corbyn
struggled
to
oppose.

But
just
as
those
pension
freedoms
begged
questions
about
public
access
to
financial
advice,
the
pressure
today
to
improve
consumer
financial
literacy
and
confidence
has
not
disappeared.

“The
‘Targeted
support’
model
represents
a
practical
response
to
the
advice
gap
identified
after
the
Retail
Distribution
Review,”
Cahini
said.

“This
model
acknowledges
that
consumers
facing
complex
financial
decisions
may
not
always
want
or
be
able
to
access
regulated
financial
advice,
and
we
believe
it
would
significantly
improve
the
current
situation
where
consumers
may
receive
no
professional
support
at
all.” 

This
model
could
also
support
savers
in
the
“accumulation”
phase,
and
could
provide
consumers
with
the
ability
to
make
decisions
about
their
pension
funds
at
retirement
with
professional
guidance,
she
said.

Selby
also
suspects
Labour’s
fresh mandate
could
be
an
opportunity
to
reform
individual
savings
accounts
(ISAs).
At
the
moment,
there
are
six
different
types
of
ISA.
Some
think
that
is
just
too
many,
and
that
simplifying
the
system
would
give
savers
more
freedom
to
move
between
cash
and
investments
in
one
tax
wrapper.

“As
a
first
step,
the
next
government
should
look
at
merging
cash
and
stocks
and
shares
ISAs,
the
two
main
ISA
products
used
by
investors,”
Selby
said
in
a
note.

“This
move
would
make
it
simpler
for
investors
to
shift
between
cash
and
investments
and
move
us
towards
a
world
where
investments
are
simply
a
feature
of
ISAs,
rather
than
a
defining
characteristic.”

In
addition,
Starmer’s
government
could
increase
the
ISA
allowance
from
£20,000
to
£25,000
and
abolish
the
“British
ISA”
proposal
announced
by
former
chancellor
Jeremy
Hunt
at
the
Budget
earlier
this
year. 

Non-Dom
Knock-On:
How
Will
Labour
Raise
Tax
Cash?

However,
Yazmin
Boden,
partner
at
wealth
management
firm
GSB
Wealth,
is
concerned
about
changes
Labour
might
make
to
the
taxation
of
“non-domiciled”
UK
citizens.

Until
recently,
UK
residents
with
permanent
homes
outside
the
UK
paid
no
tax
on
overseas
income
despite
working
and
living
in
the
UK
itself.

The
topic
is
so
controversial
Jeremy
Hunt
himself
announced
a
ban
on
the
status,
which
has
previously
been
used
by
businessman
Roman
Abramovich,
former
Bank
of
England
governor
Mark
Carney,
and
former
prime
minister
Rishi
Sunak’s
wife
Akshata
Murty.

Labour
too
has
supported
a
ban,
but
there
are
still
questions
over
the
consequences.

“The
proposed
changes
to
the
non-dom
taxation
space
will
likely
present
a
knock-on
effect
to
the
inheritance
tax
regime
for
UK
domiciled
individuals
living
outside
the
UK,”
Boden
said.

In
her
view,
the
proposed
changes
would
discourage
wealthy
individuals
from
living
in
the
UK
altogether.

Jason
Hollands,
managing
director
of
investment
platform
Bestinvest,
also
agrees
inheritance
tax
and
pension
tax
reliefs
could
now
be
vulnerable
because
Labour
has
already
pledged
not
to
increase
income
tax,
VAT,
national
insurance,
or
corporation
tax.  

Indeed,
Labour
is
going
to
have
find
ways
of
raising
tax
revenue
somewhere.

“Parliamentary
dominance
is
one
thing,
but
as
Liz
Truss
and
Kwasi
Kwarteng
discovered
with
their
fateful
mini-Budget,
maintaining
credibility
with
the
financial
markets
is
vital
too,”
Hollands
said. 

“Having
carefully
nurtured
relationships
with
the
City
and
business
community,
Keir
Starmer
and
Rachel
Reeves
will
be
mindful
of
the
need
to
build
confidence
with
the
financial
markets,”
he
said.

“In
the
near
term
at
least,
I
would
expect
Labour
to
stick
to
the
policies
set
out
in
the
campaign
rather
than
spring
surprise,
radical
new
ones
out
of
a
hat.”

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