How will the new government affect your financial planning?
December’s general election delivered a Conservative government with the sort of majority which consigns the knife-edge parliamentary battles of recent years to the past. So what will the new government do, apart from “get Brexit done”?
A look at the Conservative manifesto, easily the shortest of the three main parties, gives some limited clues.
Income tax There was a promise of no increases to income tax rates – although it is worth remembering that this does not extend to Scotland and Wales, which can both set their own rates. While Boris Johnson had talked about an £80,000 higher rate threshold during his campaign to become party leader, this idea did not reach the manifesto.
National Insurance Contributions (NICs) A no rate increase promise also applies to NICs, however, this may prove difficult to square with the abolition of class 2 self-employed contributions, which has been regularly deferred. The manifesto also promised an increase in the national insurance threshold to £9,500 in 2020/21 from the 2019/20 level of £8,632. That is worth a theoretical maximum saving of £104 a year for an employee (and £78 for the self-employed). The true saving is smaller, as the threshold would have risen to £8,788 through normal inflation linking. The manifesto expressed an ‘ultimate ambition’ – with no date specified – to raise the threshold to £12,500 (matching the current personal income tax allowance).
Social care After the problems Boris Johnson’s predecessor encountered on this topic during her election campaign, the manifesto (and Queen’s Speech) gave few clues beyond a commitment to build a cross-party consensus to solve the problem of funding social care. One condition of that solution would be that nobody needing care should be forced to sell their home to pay for it.
Corporation tax The rate cut from 19% to 17%, which was legislated to take effect from April 2020, will no longer happen.
The change in the NICs threshold represents over two-thirds of the tax cuts promised in the manifesto over the next four tax years. The financial picture should be made clearer in March, when the long-overdue Autumn Budget will now be delivered. In the meantime, if you want to see your tax bill fall, the solution looks to be in your own hands, not the Chancellor’s.
Tax laws can change. The Financial Conduct Authority does not regulate tax advice.