Brexit, Corbyn ...and equality for all but you
ALTHOUGH the manifestos are not yet out, it is easy to sense the direction of financial travel from the country’s two main political parties as we hurtle towards a General Election. In crude terms, if you are middleclass, earning a half-decent salary and a prudent saver, Labour wants to make your life hell. That is if, by some miracle, it forms the next Government.
Socialism at its rawest and most hideous, although this might be ameliorated (slightly) if the Liberal Democrats helped Labour and the Scottish National Party form a coalition.
Labour has already outlined a lot of the things it wants to do to bring about the greater equality in society that Comrade Corbyn craves for. Be warned, the list is endless, horrible and spiteful.
‘High’ earners – anyone earning more than £70,000 or £80,000 a year according to Shadow Chancellor John McDonnell – are likely to be hit with higher income tax rates. Indeed, basic rate tax could be hiked to fund Labour’s extravagant spending plans.
Tax breaks will be curtailed on pension saving though admittedly this is not a stance unique to Labour. The Conservatives – in coalition and in government on their own – have done their fair share of chipping away at pension tax breaks with reductions to the lifetime allowance and restrictions in the amount taxpayers can contribute every year.
Higher rate relief on pension contributions will surely be scrapped if Labour gets into power. But then it might also disappear if the Conservatives are victorious. A win for Theresa May would give the Treasury the perfect platform to turn the screw on pension savers – and push them towards Individual Savings Accounts, something it has been itching to do for ages because Isas are less demanding on the Government’s purse.
Mind you, Labour would not stop at pruning pension tax breaks. The personal savings allowance could well be scrapped for higher rate taxpayers and it would not be a surprise if the annual Isa allowance (a now ludicrously generous £20,000) were pared back. A swingeing rise in capital gains tax would also be on the cards as well as a more onerous inheritance tax regime.
On the plus side, Labour appears more willing to stick with the state pension triple lock that ensures generous annual increases for pensioners. It would also probably be tougher on greedy energy firms.
Of course, the Conservatives’ recent decision to raise a variety of taxes has met with justifiable criticism – and in the case of both proposed National Insurance contribution rate increases and a hike in probate fees, embarrassing U-turns. There have been hikes in insurance premium tax and cruel cuts to bereavement benefits. Then, from next year, the tax-free dividend allowance will also shrink, from £5,000 to £2,000.
The triple lock guarantee is also likely to disappear, replaced by a double lock (a measure suggested last week by Baroness Altmann, former Pensions Minister, who believes the 2.5 per cent element should be dropped on affordability grounds).
Over the coming weeks, we will learn more about the possible impact of a future Labour or Conservative Government – and we will report on that diligently.
In the meantime, I advise you to get your finances in good Election order. If you are a higher rate taxpayer, I would put as much money into a pension before higher rate tax relief is axed. If you have a mortgage, ensure it is fixed for as long as possible because it will provide you with certainty during what could be a tumultuous future: Brexit plus Labour, a combination akin to A Nightmare On Elm Street.
While we wait for the real impact, get your finances in good order