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Tax and financial planning priorities for the new Labour government

Date: 05 July 2024

9 minute read

05 July 2024

Rachael Griffin, tax and financial planning expert at Quilter:

"Following Labour’s victory in the UK election, the focus now shifts to the party’s immediate fiscal agenda. The prevailing sentiment from Labour’s campaign was one of moderation – the ethos was ‘expect the expected’. Labour pledged not to raise the primary revenue-generating taxes – namely income tax, VAT, national insurance, and corporation tax.

"But with a mandate for change, the new government is well-positioned to implement significant reforms.

"The projected revenues from Labour’s proposed measures (such as VAT on private school fees, removal of non-domicile status and windfall taxes) have been deemed by the IFS as “insignificant to negligible.”

"This has led to speculation about how the Labour government plans to finance the anticipated upsurge in public expenditure, without resorting to further tax hikes or exceeding the borrowing limits set by the fiscal rules that Rachel Reeves has committed the party to.

"Labour has been prompt in dismissing any insinuations by the Conservative Party regarding potential tax increases, suggesting limited immediate alternatives. It seems Labour is banking on their progressive supply-side economic policy to spur enough growth to create fiscal leeway for increased spending in the latter part of their term.

"So, where should Labour’s immediate focus be for tax and personal finance reforms to help stimulate economic growth?"

Simplify the ISA regime

"The once-simple ISA regime has become a little ‘Heath Robinson’ in trying to solve distinct issues with new, overly complex products. The oddly named, Lifetime ISA, for first-time buyers was followed by the proposal for a ‘GB ISA’, to encourage investment in UK shares. 

"While laudable in its intent, the GB ISA risks further confusing the ISA landscape for savers without equating to much of a boost for UK plc. Labour now has an opportunity to present more impactful ways to stimulate investment in the UK market.

"The ISA's original concept—a tax-efficient vehicle for wealth growth—has been diluted by multiple iterations. It’s forerunner – Nigel Lawson’s PEP did originally require investment in the UK market so there is precedent for considering how to extend and incentivise a larger ISA allowance to boost the UK, but that would be better as part of a single product.

"As part of a wholesale review of ISAs, the government could also prioritise simplicity by aligning the current Stocks and Shares ISA and Cash ISA into a single, versatile account. This consolidation would facilitate both short-term and long-term financial planning, encouraging more individuals to invest rather than leaving their funds stagnant in low-yield cash ISAs.

"Moreover, additional incentives like a consolidated increased allowance could enhance the ISA's attractiveness. The changes in April 2024, allowing contributions to multiple ISA types within a single tax year, mark a step toward simplification. However, without further streamlining, the benefits may not be fully realised. Simplifying the ISA landscape will help more people invest, ultimately benefiting the economy in a far greater way than a new British ISA."

Reform Inheritance Tax (IHT)

“Simplifying IHT and increasing gifting allowances, while potentially reducing immediate IHT revenue, could significantly stimulate economic growth by unlocking capital tied up in estates. While unlikely to be a priority for a Labour government, the released capital could drive increased personal spending, additional investment in UK plc and further job creation, so we could see an IHT review in the longer term prioritising simplification and modernisation.

“Simplification could involve consolidating the myriad exemptions and reliefs into a more generous, broad-based exemption or abolishing the residence nil-rate band, which is complex and outdated no longer reflecting the diversity of modern households.

“Just simply increasing the annual IHT gifting exemption to over £10,000 would also be beneficial. The current £3,000 limit, unchanged since 1981, needs to be modernised and enhanced gifting allowances would promote more intergenerational wealth transfer, improving financial security for younger generations and enabling them to make significant life investments without the donors worrying about IHT liabilities.

“But wholesale simplification of IHT, which doesn’t reduce the amount paid but does reduce the complexity of the tax could also help reduce the administrative burden on HMRC and in turn free up more of its resources. This is essential if Labour is going to achieve its lofty goal of raising over £5 billion annually from closing the tax gap.

“The measures announced by Labour thus far may not boost coffers as intended, so they may opt to look elsewhere for easy pickings. Removing the uplift on death for CGT or keeping inheritance tax thresholds frozen, for example, could be a big tax raiser that Labour may lean on if required.

“IHT reform in whatever guise is well overdue and should be looked at as a priority.”

Jon Greer, head of retirement policy at Quilter:

Establish a long-term pension policy

"Labour’s pension review aims to overhaul the current system, potentially extending auto-enrolment and adjusting contribution thresholds to make workplace pensions more accessible. This is critical to ensure more people are saving more for their later life, while directing putting additional funds to work in the market.

"The pension review also is also likely to explore productive investment strategies, leveraging pensions to stimulate the UK economy in a continuation of Jeremy Hunt’s Mansion House reforms encouraging pension funds disclose and invest more in UK assets. 

"The introduction of Collective Defined Contribution (CDC) schemes, where both employers and employees contribute to a collective pot, are likely to be on the agenda, however, the practical implications of these proposals remain to be seen. The government must provide clear, actionable steps to ensure these reforms effectively enhance retirement security.

"An area that is likely to become increasingly important for the next government to address is the state pension triple lock. At present no government has had the boldness to tackle what is an unsustainable policy for fear of losing votes. Despite labour’s manifesto pledges, we need policy that works for the long-term and a state pension uprating system that is pegged to average earnings would be a fairer option that should make the state pension sustainable for future generations. Rather than the triple lock being used as a political tool, its future policy should be better set by an independent pension commission to ensure the right balance of long term outcomes for UK retirees and the economy."

Katja Oakley-Bell, personal finance expert at Quilter:

Enhance financial education in schools

"The UK Parliament’s Education Committee's report earlier this year underscored the critical need for integrating financial education into the school curriculum.

"Early financial literacy is essential for fostering long-term financial independence and security. With children engaging with money at increasingly young ages, the introduction of structured financial education in both primary and secondary schools is crucial.

"Labour should take a strong focus on incorporating financial education into subjects like maths and PSHE to ensure comprehensive coverage across different school types. This education should encompass practical financial skills such as creating and using a budget, building a financial plan and understanding needs versus wants. This kind of education should promote a broader sense of financial well-being by helping children and young adults to understand the variety of financial products on offer such as the purpose of a pension and ISA and also the taxes that are likely to affect them such as income tax and national insurance.

"The government's adoption of these recommendations could significantly enhance financial literacy among future generations, helping them navigate the complexities of modern financial systems and also helping to boost investment within the UK.

Jenny Davidson, commercial proposition director at Quilter:

Address the advice gap

"Continuing with the work that has been started to address the UK’s advice gap through the Advice Guidance Boundary Review (AGBR) is critical step for the new government, as it holds significant implications for the long-term economic health of the country.

"With an advice and guidance gap of nearly 40m people in the UK, the AGBR is striving to provide consumers with the help they need, precisely when they need it. It is encouraging innovation by reconsidering how financial advice and support are delivered.

"By examining the regulatory boundaries between regulated financial advice and other forms of support, the review could expand the availability of consumer support. This expansion is vital for ensuring that a broader segment of the population can benefit from professional financial guidance and advice.

"A well-informed and financially literate population is the bedrock of a stable and prosperous economy. Better financial management leads to higher savings rates, increased economic investment, and reduced dependency on social welfare. Furthermore, a climate that nurtures responsible financial innovation can attract more business and investment, reinforcing the UK’s status as a preeminent global financial hub.

Charlotte Nixon, mortgage expert at Quilter:

Deliver on housing plans

"As Labour embarks on its newly won mandate, the ambitious manifesto pledge to build 1.5 million homes is a step in the right direction and could go some way to addressing the UK's long-standing housing crisis. Labour’s plan to overhaul the planning system and increase housing supply could help to improve the prospect of home for many young people. Addressing the limited housing stock is essential for creating a more accessible and affordable housing market.

"However, it is crucial to recognise that such ambitious targets have historically been challenging to meet. The success of this initiative will depend on unwavering commitment, significant resources, and effective execution. Building 1.5 million homes within five years is a monumental task that requires not only political will but also the cooperation of local authorities, private developers, and communities. The promise to fund 300 new planning officers and the establishment of an independent taskforce to identify sites for new towns are positive steps, but they must be backed by consistent and substantial investment.

"Conversely, the "freedom to buy" scheme, which aims to make the mortgage guarantee permanent, seems less likely to address the deeper issues of affordability and accessibility. While well-intentioned, this policy alone does not tackle the fundamental problem of high property prices relative to average incomes. First-time buyers often struggle with borrowing limits and the risk of negative equity, especially in a market characterised by high loan-to-value ratios and fluctuating house prices. Without a significant increase in the supply of genuinely affordable homes, schemes like "freedom to buy" offer limited relief to those priced out of the market."

Alex Berry

Alex Berry

External Communications Manager