The politics of it all: How will a change of Government affect my finances?

By the end of 2024, approximately 1.5 billion people will have gone to the polls. There are significant elections taking place in more than 50 countries which between them hold almost half the world’s population. Wow. 

Financially, what does this mean for you?

There’s no doubt that it makes planning feel much harder. There is a lot of speculation around and a lot of unknowns. The parties are throwing everything at it, promising whatever they think will get them over the finish line and into Westminster. But the reality is that they won’t be held to their ‘promises’ and some policies may never come to pass – we won’t know until we know.

Here’s what not to do

When I advise clients, in addition to investment risk, inflation risk, interest rate risk, I also suggest that we all need to factor in political risk and tax risk) as these areas do have an impact on current and future financial planning. 

It’s uncertain. But don’t let this uncertainty take your focus away from the things that matter to you financially now and longer term. Focus on the things that are within your control and don’t try and ‘play the markets’.

If your mortgage product is due to expire (like it is for some 3 million of us between now and 2026), start looking at options now or take advice. Don’t put your head in the sand. Don’t hold out in the hope you’ll catch interest rates as they come down enough to make the new mortgage payments more palatable.

Take care not to just take your tax free cash now in the event of mitigating the risk of allowances being removed. If you don’t spend the money and you die, this money could be liable for IHT whereas within a pension wrapper no IHT is payable.

And don’t forget the markets focus on profitable companies which are well run and as we have seen over time, there is little long term impact on investment returns upon their being a change of political party. So this is one area you shouldn’t focus too much energy on.

If we assume that come the end of the week, we will have a Labour government, there are some topics that are understandably front of mind:

Pension Lifetime Allowance

The pension lifetime allowance, for example, is it staying, is it going? Well, it’s now gone with the wind. Will a Labour government reintroduce it? According to reports, Labour don’t want to add to the uncertainty, so have ruled this out although a pensions review has been mentioned in their manifesto. So all good here for now. Sometimes having a concrete decision is better than the constant chatter about change. Indeed, based on recent data from tax returns there were 11,660 lifetime allowance charges between 2021 and 2022, due to alleged errors in legislation.

School Fees

The other topic getting a lot of media coverage is school fees & VAT. Sir Keir Starmer’s party believes it can raise some £1.6bn a year by ending the 20 per cent VAT exemption as part of its plans to recruit around 6,500 specialist state school teachers in England. Plenty of hype, but no decision will be made until 2025. If you’d like to find out what you can do in the interim, I’ve written an article here about what to watch out for.

And then there’s taxes

I have had a number of calls about how the large gaping hole of £38bn – £46bn in public spending will be paid. This will undoubtedly be in tax rises. But Labour’s intention is to ‘not increase taxes on working people’. We will definitely have to wait and see on what the specifics of this one look like and how this will play out.

Will Inheritance Tax be abolished? Also known in some quarters as ‘a post code asset tax’ given that the average property price in London and the South East is that much higher compared with post codes further North. Nothing has been mentioned about this in Labour’s manifesto, so again we will have to wait and see.

While it is human nature to worry about change and the unknown, no one can predict what a new of Government will really mean for your individual situation. But if there is one thing I do know, talking about your concerns will make a difference. So please do give us a call or send us an email and let’s talk.