Patrick Mill, CEO

For professional advisers only

Following a historic victory in last week’s general election, Keir Starmer is now the UK Prime Minister. With the dust settled on a dramatic campaign, let’s explore what the new Labour government has planned for pensions, tax, and the economy. While the details won’t be confirmed until the King’s Speech on 17 July, here’s a preview of potential policies.

Pensions

Rachel Reeves, the newly appointed Chancellor, has given a clear steer that the new government’s main objective is to boost the UK’s economic growth and that this will include using the pension system to drive investment. The new Chancellor has already stated she wants to drive investment in homegrown businesses and at the same time deliver greater returns to pension savers – but there’s no guarantee that one will lead to the other, so we need to know more about what these plans mean.

Labour’s manifesto pledged a comprehensive review of the pensions landscape to improve outcomes and increase investment in UK markets. While we don’t have a lot of detail, this review might also address auto-enrolment contribution levels and pension freedoms, with a focus on guaranteeing long-term income for those in retirement. Significant changes are expected, but the pace will need to align with the pensions industry’s capacity for adjustment.

The financial services industry would welcome a period of stability in pension policy with a clear road map for reform. Labour has committed to maintaining the triple lock for state pensions, a policy expected to cost around £1.5 billion per year by 2029-30 according to the Institute for Fiscal Studies.* The government will, however, need to address issues of funding and potential state pension age increases.

Before the election Labour indicated that it would not reintroduce the Lifetime Allowance (LTA), providing some certainty for retirees, as well as advisers, who have been adapting to the new rules since its abolition was announced in the 2023 Spring Budget. However, given the new government’s need to generate funds and the high cost of pension tax relief, reforming pension taxation might become a lever for emergency tax increases if the financial situation is worse than initially thought. Treasury officials have been instructed to provide an assessment of the state of spending that the new government has inherited which we can expect to see before Parliament breaks up for the summer.

Taxes

Keir Starmer said at his party’s manifesto launch that they planned tax rises of £8.6bn.** The party also pledged not to increase taxes for ‘working people’ in its manifesto, ruling out hikes in income tax, national insurance, and VAT. However, they have indicated they will introduce VAT on private school fees, which could add a financial burden for some parents.

One area Labour may look at is capital gains tax (CGT). They remained fairly quiet on CGT during the election campaign but there is speculation that rates might rise. This wouldn’t be surprising, as the current rates of 10% for basic rate taxpayers and 20% for higher rate taxpayers are relatively low compared to historical rates. Although the 10% and 20% rates have been in place since 2016, the allowances individuals can offset against capital gains have been significantly reduced in recent years, dropping from £12,300 to £3,000.

Labour may find they have to address frozen tax thresholds, which have pushed millions into higher income tax brackets. The Office for Budget Responsibility projects the number of higher-rate taxpayers will rise to 2.7 million by April 2029.*** It’s unclear whether Labour will extend temporary tax cuts like the 5p fuel duty reduction and the stamp duty holiday, and both are set to expire next year. The ISA landscape, which was introduced by a Labour government in the first place, may also be on the receiving end of a review, with the manifesto promising simplification, which could involve changes to the contribution limits.

The Economy

One of the biggest challenges the new government faces is increasing the money spent on vital public services, such as the NHS, without raising taxes. It has pledged to stimulate economic growth as one of its top targets, doing this through budget balancing, business partnerships, job investments, and banning zero-hour contracts.

However right now this is all just speculation, and we’ll know more about the government’s definite plans for financial services following the King’s Speech on 17 July, after the first Budget, likely to be after mid-September, and in the months to come.

Please remember that the value of investments and the income from them can fall as well as rise, and you may get back less than you invest. Tax treatment depends on individual circumstances and may be subject to change in the future.

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* https://ifs.org.uk/publications/pensions-five-key-decisions-next-government

**FT.com, Keir Starmer sets out plans to raise £8.6bn in tax at Labour manifesto launch (ft.com)
*** 3.39, page 67 https://obr.uk/docs/dlm_uploads/E03057758_OBR_EFO-March-2024_Web-AccessibleFinal.pdf