The countdown to the General Election

February 19, 2015

The UK economic recovery appears to be holding its own, and wage growth is beginning to come through. However, there’s another rather large obstacle looming: uncertainty over the outcome of the General Election. With less than 90 days to go to the big day on 7th May, we thought we’d take a quick look at what the main parties’ promises could mean for you and your money by focusing on their policies around income tax and benefits.

Conservatives

The Conservative Party is still trying to balance the nation’s books and plans to further cut public spending. But what about plans for individuals?

Income tax: The personal allowance on income tax will be raised to £12,500. By 2020, no one earning less than £50,000 will pay the 40p tax rate. They claim this plan will benefit 30 million taxpayers.

Benefits: The annual benefits cap will be reduced from £26,000 to £23,000. 18-21 year olds on Jobseeker’s Allowance will no longer also be able to claim housing allowance benefit.

There are bound to be some more pledges to emerge from George Osborne’s final Budget speech on the 18th March, but if employment continues to grow and wage growth accelerates over the coming months, we’d expect the Conservative’s chances of victory to improve.

If the Conservatives emerge as the largest party and are able to form a government, either independently or in coalition, we’d expect the UK stock market and the pound to rally, which could yield some good results for investors in the right markets.

Labour

A Labour win, on the other hand, could see a fall in the stock market and the currency due to concerns that the party might be unable to bring the deficit down. But stock markets aside, what is Labour promising individuals?

Income tax: The introduction of a starting 10p tax rate will, Labour predicts, reduce tax bills for an estimated 24 million people. However, they’re also planning on the reintroduction of the 50p tax rate for those earning over £150,000 and a mansion tax on properties worth over £2 million so those who are better off could end up paying more tax.

Benefits: They’re planning on capping future rises in Child Benefit, but offsetting this by providing working parents with more free childcare. The Winter Fuel Allowance will be scrapped for ‘well-off’ pensioners.

Liberal Democrats

In the run up to the election the Lib Dem’s have their own plans separate from those of their coalition partners, the Conservatives.

Income tax: The personal allowance will be increased to £12,500

Benefits: Parents of under-12s will receive up to £1,200 per child to help with cost of childcare. 15 hours of free childcare for two year-olds will be available to 40% of the population and there will also be an increase in the number of hours of free childcare for three and four year-olds.

UKIP

Is UKIP a real contender? We’re not so sure, but we thought we’d still mention them here. The big change here would be a withdrawal from the EU which would save us paying its membership fees, which UKIP says costs us £55 million per day (others argue this is overinflated and the figure is closer to £24 million). Such a huge change could wreak havoc on the stock markets, but what’s the deal for individuals?

Income tax: UKIP will increase the personal allowance on income tax to around £13,500. They also plan to introduce a 35p tax rate between £42,285 and £55,000. They plan to abolish Inheritance Tax.

Green Party

The Greens’ policies are focused around trying to reduce the differences between the highest and lowest earners in society. For example, they plan to introduce company-wide maximum pay ratios to make sure that a CEO earns no more than ten times the salary of the lowest paid employee.

Income tax: They plan to introduce a 50% income tax rate above £100,000. They also plan to introduce a ‘wealth tax’ of between 1% and 2% against those with assets of £3 million or more.

Benefits: The Greens plan to replace tax-free allowance systems and benefits with a ‘Citizen’s Income’ for everyone, regardless of whether they’re in work, seeking work or not to cover an individual’s basic needs.

What should you do to prepare for the election?

Regardless of how politically savvy you are, or indeed if you intend to vote in the General Election at all, considering where markets and the political landscape could go can help you plan your spending, saving and investing for the year ahead. But the trouble is nobody can predict the future and the polls are pretty close at the moment between Conservative and Labour. The ever-increasing prospect of ‘no overall majority’ could lead us into the complex world of another potential coalition deal which further complicates things.

Uncertainty often creates opportunities for long-term investors. Assuming that there is not extended major political instability following the election in May, we expect the pound to strengthen overall. We think there’ll still be decent growth in the UK and there’s still the expectation that the Bank of England will start edging interest rates up…

Obviously we’ve barely scratched the surface here. There are lots of wider policies for all parties which might affect your pocket as well as those of the country. We’ll continue to watch developments with interest over the coming months and will share our musings as we go.

 

This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.

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