by Simon Read
Personal finances and the state of the UK’s economy have been to the forefront of the issues driving the agenda in the run-up to the general election. Politicians appear to have decided that appealing directly to people’s pockets will bring them votes but there are few manifesto promises that are likely to lead to boom times for individuals or the economy, especially with the Brexit unknowns ahead.
One of the biggest arguments in the run-up to the general election has been around pensions. They’ve become a hot political potato for a simple reason, they affect us all either because we’re already retired or because we will one day!
Bear in mind that there are around 13 million people in the country who are already drawing a state pension. That’s a crucially large constituency of voters so the different parties have been keen to woo older people.
But there’s also a feeling in some quarters that pensioners have had it too good for too long and that the current system of increasing the state pension every year is too generous.
At present, state pensions are linked to a triple-lock that guarantees they will rise every year by either 2.5%, the inflation rate, or earnings growth, whichever is the higher.
How the parties plan to tackle pensions
The Tories will remove the 2.5% element to turn it into a double-lock from 2020. Plaid Cymru, the SNP, LibDems and Labour will retain the triple-lock while the latter has promised support to the Waspis, the estimated 2.5 million women financially hit by changes to the state pension age. However, it hasn’t specified what that support will be.
One of the most controversial manifesto missteps has been the Conservative plan to make people pay for any care they may need in later life by selling their home, which was quickly dubbed ‘dementia tax’.
The anger generated prompted Theresa May to make an embarrassing U-turn on the issue by promising to cap the amount people will have to pay for their care.
In response, pension expert Tom McPhail of Hargreaves Lansdown warned: “The next government will need to look at a joined-up savings policy which touches on state pensions, on private pension savings, and now arguably, on the question of social care too.”
How the parties plan to tackle income tax
One issue that affects all is income tax. The Tories say they will increase the tax-free personal allowance to £12,500 and the higher-rate threshold to £50,000 by 2020. That’s good news in cold hard cash terms: around 24 million basic-rate taxpayers will end up £33 a year better off in today’s prices under the plans, according to the Institute of Fiscal Studies. Higher-rate taxpayers will gain £208 per year.
Labour has more radical income tax plans: it wants to introduce a new system, where the first £80,000 of your income is taxed at 20%; between £80,000 and £125,000 at 45% and £125,000 and above at 50%. In other words, the party plans to pass more of the tax burden onto the higher-paid, which should come as no surprise.
Meanwhile, the Liberal Democrats will add a penny in the pound to income tax rates to pay, they say, for the NHS and social care, as well as aligning National Insurance and income tax thresholds.
The Greens’ alternative plan is for a wealth tax on the top 1% of earners while UKIP says it will outdo the Tories by increasing the personal tax-free allowance to £13,500, and the higher-rate tax threshold to £55,000.
Tories mock Labour’s ‘magic money tree’
The wider economy would get a boost from Labour’s promised £250 billion of additional infrastructure spending over ten years as part of plans to increase public spending. Notably, it will splash out through its controversial but popular plan to abolish student loans and a renationalisation programme involving Royal Mail, the railways and the water companies.
It detailed the costs of its plans in its manifesto and said it intended to pay for the spending by raising £49 billion per year from the “rich” and from companies by raising corporation tax to 26% from its current 19% level. But the figures were picked apart by boffins at the IFS to reveal, it suggested, a £9 billion black hole, because of “some factual mistakes with regard to part of their tax avoidance package, optimistic assumptions and unspecified tax increases”. That news prompted Tory jeers of a ‘magic money tree’.
Lack of honesty
However, Paul Johnson, IFS director, said: “Neither main political party is being really honest with the public. It is likely that the Conservatives would either have to resort to tax or borrowing increases to bail out public services under increasing pressure, or would risk presiding over a decline in the quality of some of those services, including the NHS.”
Labour’s renationalisation programme is likely to find favour among fed-up consumers of the various services. Some may even wish renationalisation went further to include gas and electricity companies. The only mention of them in party manifestos was the Tory plan to introduce a cap on price increases, first proposed, of course, by Ed Miliband at the last election.