- Speculation about the future of Keir Starmer as prime minister continues to swirl, with the Makerfield by-election on 18 June the next key date in the saga
- A new prime minister could mean a new chancellor – and an opportunity to U-turn on two damaging policies
- AJ Bell would support a change of direction with the cut to the Cash ISA allowance and the decision to apply inheritance tax (IHT) to unused pension funds on death, both set to come into effect from next April
- There are multiple examples of policy pivots under new PMs in the past few decades, from John Major after Margaret Thatcher, to Liz Truss and Rishi Sunak
Sarah Coles, head of personal finance at AJ Bell, comments:
“Nobody knows what will happen next in the ongoing drama over the Labour Party leadership. There are no guarantees there will be a change of leader, let alone any certainty over who it might be. However, what we do know is that if there is a change, regardless of all the reassuring things they say about continuity during the process, there will be new policies.
“New brooms are always keen to sweep clean. And right now, there’s a huge opportunity to alter some of the changes that are set to cause real headaches for people’s personal finances.
“Throughout history, new leaders have been keen to leave their mark on the finances of the nation. Those that take the position after a leadership change rather than a general election may not have had a chance to put their ideas to the electorate, but it hasn’t held them back from some fairly radical changes in the past.
Maastricht Treaty
“When John Major replaced Margaret Thatcher, at the heart of the change was a disagreement over the future of the relationship with Europe. So it’s not surprising that an early U-turn was over the issue of signing the Maastricht Treaty. This created the European Union out of the European Economic Community and agreed the framework for a single currency. Thatcher had been violently opposed to it and Major signed on the dotted line.
Poll Tax
“Thatcher’s Poll Tax (officially known as the Community Charge) was a key policy, which she hoped would control spending by Labour Councils. However, by taxing per head instead of according to properties, it effectively doubled what some households paid, and it was hugely politically unpopular. In 1991, within months of becoming PM, Major announced it would be axed and replaced with Council Tax.
National Insurance
“The Liz Truss mini-Budget included a U-turn on the 1.25% rise in National Insurance contributions from November 2022. This had been brought in by predecessor Boris Johnson in April 2022 and was positioned as a levy specifically to pay for health and social care.
Dividend tax
“At the same time, Johnson had announced a plan to increase dividend tax by 1.25 percentage points to help cover the cost. The Truss-Kwarteng mini-Budget pledged to reverse this too.
Dividend tax again
“Much of the mini-Budget was reversed after Jeremy Hunt had replaced Kwasi Kwarteng – still under Truss. At that point Hunt announced that the rise in dividend tax would go ahead after all. Then, after Truss was replaced by Rishi Sunak, Hunt went further and cut the dividend allowance, so more people paid more of this tax.
Additional rate tax
“The arrival of Sunak also precipitated a rethink on the 45p additional rate tax. The mini-Budget had pledged to axe it altogether. This had been U-turned on by Hunt under Truss. But under Sunak he actually cut the threshold for additional rate tax from £150,000 to £125,140, so many more people would end up paying it.
Two U-turns AJ Bell would support under a new PM
“There’s plenty of precedent for a change of leadership bringing about a U-turn in economic policy. If there was to be a leadership change, there are two excellent candidates for a rethink.
- Ditch the changes to the Cash ISA
“Cutting the Cash ISA allowance for under-65s from £20,000 to £12,000 will not achieve the objective of encouraging investment and instead will just push savers to regular taxed accounts, whilst making things more confusing for savers and investors. A better approach would be to keep the existing rules and find smarter ways to help people to make that jump to investing by simplifying the ISA landscape – rather than adding more complexity.
- Abandon bringing pensions into inheritance tax (IHT)
“Instead of going ahead with plans to count unused pension savings in estates for inheritance tax (IHT) purposes from April next year, the chancellor – whoever that may be – should reach for the simpler alternatives that are available, such as using income tax or applying a flat charge on death. These could raise the same amount of money for government coffers without creating distress for vulnerable grieving families by piling on complex administration and delaying payments out of pension funds.”
