The next General Election is set to take place on July 4, Rishi Sunak has announced.
The two main political parties, Conservative and Labour, have not yet set out their manifestos, documents that set out the policies they would implement if they came to power.
Full manifestos are likely to be unveiled in the weeks leading up to the General Election, something many will be keen to see to find out how the policies could affect them.
Some pledges have already been announced or hinted at. We reveal how the general election could affect your money and finances.
Pension lifetime allowance reintroduced
Labour has said it plans to reintroduce the pensions lifetime allowance, which is a limit on the amount you can save into a pension without facing hefty tax penalties.
The former pension lifetime allowance meant there was a tax charge of up to 55 per cent on total pension savings beyond £1.07m. The current government abolished the allowance altogether in 2023, but Sir Keir Starmer has said he is “absolutely committed” to reversing this decision.
This could mean savers with large pension pots could once again face tax charges if their savings are above the £1m threshold.
The Conservatives are yet to state clearly what they intend to do with lifetime allowances but they abolished the cap only last year and there has been no hint that they intend to reverse the decision.
Jeremy Hunt abolished it arguing that the move would encourage high-earning older workers to stay in the workplace amid concern over the number of over-50s leaving.
Experts have said it would be “crazy” if the Tories reversed their decision on abolishing the policy now. Tom Selby, director of public policy at AJ Bell, said: “Given the Tories only abolished it in April, it would be crazy if they chose to reverse that decision.”
While reinstating the lifetime allowance is no doubt attractive from the perspective of political messaging, the practicalities and risks associated with doing so are daunting, says a report from consultancy LCP.
It could result in those with large defined benefit pensions, who are often those in the public sector, retiring early to avoid facing a tax charge, or those with large defined contribution pensions withdrawing from them earlier than planned.
The Labour party is said to be considering a way to reintroduce the pensions lifetime allowance without deterring senior public sector workers from carrying on in their roles.
Triple lock pensions commitment
Another key consideration when it comes to pensions is the triple lock.
Both parties have committed to retaining the generous scheme over the course of the next parliament (so the next four or five years). This will ensure the state pension rises each year in line with inflation, average earnings growth, or 2.5 per cent – whichever is highest.
The full new state pension is currently worth £221.20 per week, or just over £11,500 per year.
However, it’s possible the next government may make moves to increase the state pension age sooner than currently planned. It’s already due to rise from 66 to 67 by 2028, and to 68 by 2046 but this could be brought forward.
The state pension is an important source of income for retirees, but it is extremely costly to run. The ageing population means there are expected to be 25 per cent more pensioners in 2050 than today. The cost of the state pension has risen from 2 per cent of national income in 1948 to around 5 per cent today, and is expected to rise to 6.4 per cent in 2050.
VAT on school fees
The Labour party first said in its 2019 manifesto that if Labour came to power, it would end the VAT exemption for private schools.
Sir Keir has remained committed to this pledge ever since, saying just a few months ago that VAT on fees would be introduced as soon as the first academic year after the general election. This would mean the cost of private school fees for parents would potentially increase by 20 per cent if schools don’t absorb the tax increase.
Conservative MPs have said they will not join Labour in ending VAT exemption.
They warned that Labour’s policy will backfire as it will make private schools more exclusive.
Rishi Sunak previously said the policy showed Labour “just don’t understand the aspiration of families like my parents who were working really hard”.
The average cost of private school is £5,552 per term for day schools and £13,002 per term for boarding schools, according to the Independent Schools Council.
Some schools have said they will not pass on the full VAT cost to parents, and absorb some of the tax themselves. If fees were to rise by say 15 per cent, more than £800 would be added to term fees for day school and almost £2,000 for boarding school (not taking into account inflation).
“The rising cost of fees is clearly on the agenda of many of our clients. Anecdotally we are hearing parents paying double-digit inflationary increases over the last year with a similar expectation this year, and the looming threat of a VAT surcharge is a worry for many,” says Ben Glassman, partner in financial planning at wealth management firm Evelyn Partners.
Investment impact
There can be volatility in the stock market in the immediate run-up to the general election and after it.
A surprise result can lead to a short-term drop in stocks while traders assess what will happen next.
“The worst enemy of any stock market is uncertainty. The market has tended to perform better in the run up to an election being held when it is fairly confident about who is going to win. The market continued to gain ground before, during and after the election in 1997, when Labour’s victory was widely anticipated,” says Chris Beauchamp, an analyst at investment platform IG.
If the stock market goes down around the time of the election, your investments are likely to be impacted. This means the value of Isa or pension investments could drop in the short-term.
However, history has shown the stock market has typically settled in the months after an election. The day after the general election in 2010 – which resulted in a hung parliament – the FTSE All-Share index, which tracks the movements of all UK listed companies, fell 3 per cent before swiftly recovering once a coalition was announced and provided more certainty. Six months later, the index was up almost 10 per cent.
Rob Haworth, senior investment strategy director at US Bank Wealth Management, says economic and inflation trends are more likely to influence market returns than election results.
“Party platforms, which are hammered out at this summer’s national conventions [in the US], often tell the markets more important information than the name of the winner or loser of the general election,” he says.
Scrap non-dom regime
One of the Labour party’s flagship policies was that it would scrap the non-dom system completely if it came to power.
But the Conservative party got in ahead when Chancellor Jeremy Hunt said in his Spring Budget 2024 that he would end the non-dom tax status for wealthy foreigners living in the UK from April 2025. It means they must now pay tax on income and capital gains after four years.
The Labour Party has said it broadly supports the changes. But if it came to power, the party would go further. Rachel Reeves, the shadow chancellor, has said Labour will immediately close an inheritance tax “loophole” to prevent non-doms from transferring overseas assets to an “excluded property trust” to shelter them from 40 per cent inheritance tax.
“With Labour, things will change. We will take on the tax dodgers because if you make your home and do your business in Britain, then you should pay your taxes here too,” said Ms Reeves.
