What the Conservative win means for personal finances – AJ Bell comment

After a thumping Conservative victory in the general election, Prime Minister Boris Johnson’s first task will be to deliver on his key promise and ‘get Brexit done’.

Beyond Brexit, the party has confirmed that there will be a Budget announcement in February which will set out its spending plans for the next year and this is where we’d expect to see any potential changes to tax allowances or reliefs. 

Meantime, AJ Bell analysts Laura Suter and Tom Selby consider what the new Conservative Government could mean for people’s finances based on the tax and pension priorities for the next 5 years set out in the Tory manifesto.

Personal taxes, benefits, mortgages and childcare

Laura Suter, personal finance analyst at AJ Bell, comments:

“The Conservative Government is going to have less impact on most people’s personal finances than a Labour or coalition Government would have and we may have to wait until the Budget in February before any changes are confirmed but there are a number of pledges from its manifesto for people to consider.

“The Tory manifesto makes clear that they will raise the threshold at which you pay National Insurance from the current £8,632 to £9,500 in 2020-21. This means that anyone earning more than £8,632 will benefit, to the tune of around £100 a year. By shifting National Insurance rates rather than income tax thresholds Mr Johnson extends the giveaway to the lowest earners, in particular those on less than the current £12,500 personal allowance.

“The Conservatives also committed to not raising National Insurance, income tax and VAT rates, echoing the same pledge made in their 2015 manifesto. This means that workers shouldn’t see any hikes in these tax rates during the next parliament. This pledge has already been the source of an embarrassing U-turn by the party under Theresa May, with a plan to raise National Insurance contributions for the self-employed being scrapped after uproar at breaking a key manifesto pledge. So it’s one the party won’t want to risk breaking again.

“Rather than introducing new pledges, the Tories have instead promised to maintain benefits for older people. They will keep the winter fuel payment, bus passes, the triple lock and other pensioner benefits. (More detail on pensions below.)

“The big uncertainty is what the Conservatives will do with the TV licence. In their manifesto they continued to foist the problem of free TV licenses for over-75s on the BBC, saying they support maintaining the benefit but that the BBC needs to fund it. However, since then Boris Johnson has come out to say he wants to look at whether the entire TV licence system still makes sense.

“One of the biggest changes for those struggling to get on the property ladder that the Tories talked about bringing in, but provided scant detail on, was long-term, fixed-term mortgages for first-time buyers, in particular for those with small deposits. It’s not clear how these would be offered, with the party just saying they would encourage the mortgage industry to increase the availability of these products. A significant mental shift is required for Brits to sign up to these long-term mortgages, as even 10-year deals are rarely used in the UK – in part because of the often eye-watering exit penalties should you want to get out early.

“Some families will lose out compared to other parties in a Conservative majority, as the Tories pledged £1bn more for childcare funding, compared to Labour’s £5.5bn pledge and the Lib Dem’s £14bn commitment. But parents could benefit from the extra funding, which will be focused on after school and holiday childcare.”

Pensions

Tom Selby, senior analyst at AJ Bell, comments: 

“The Conservatives have pledged to retain the state pension triple-lock. While this will only have a tangible impact on people’s finances if both average earnings and inflation dip below 2.5%, it is valuable and delivers protection to all pensioners. Earnings and inflation have fallen below 2.5% three times since the triple-lock was introduced at the start of the decade, ensuring the state pension has increased by at least 2.5% for millions of retirees.  

“The Tories have also promised to review pension tax incentives, with a focus on the problems facing the NHS as thousands of doctors refuse shifts due to the impact of the annual allowance taper. At the heart of this is the hideously complex annual allowance taper, which aims to lower pension tax incentives for the highest earners.

“While scrapping the taper might be politically uncomfortable, it remains the simplest solution to the current crisis. If this is the outcome of the Conservative’s review, it would be good news for the NHS and higher earners who are saving for retirement.

“The Conservatives also pledged to review an anomaly which sees low earning savers in ‘net pay’ scheme miss out on pension tax relief. 

“Just like the annual allowance taper, the net pay scandal isn’t new but the Conservatives have failed to take any meaningful action so far. The problem exists because ‘net pay’ schemes deduct pension contributions from earnings before tax, meaning those who don’t pay any tax at all – i.e. the lowest earners – don’t receive the tax relief they are entitled to. It is particularly cruel this anomaly in the system hurts the lowest paid who need the tax relief boost the most. 

“Arguably the most significant news from the Tory manifesto involved what the party didn’t say, however – namely anything on the state pension age or the ‘WASPI’ campaign. This was in stark contrast to Labour, who promised to freeze the state pension age at 66 and compensate women affected by increases in their state pension age to the tune of £58 billion.

“The fact the Conservatives have been silent on two issues which would clearly have been big vote winners suggest the existing plans will likely remain intact. If that is indeed the case, state pension increases to 67 by 2028 and 68 by 2039 will likely go ahead.”

General election 2019: Conservative manifesto promises summary

The table below shows a snapshot of the Conservative party’s manifesto pledges on key financial and long-term savings.