What Labour and the Conservatives are planning for your money

The 4 July general election is fast approaching and as ever taxes and personal finances are a key area of contention for the two main political parties. 

Labour has had a double-digit lead over the Conservatives in the polls for months and is keen to present itself as a party of stability that will not make unfunded commitments. Meanwhile, the Conservatives have a lot of ground to make up and appear more prone to making bold promises that can hope to sway some voters. Here’s what we know so far about the two parties’ plans for some key areas of personal finance.

Income tax and national insurance

Neither party currently has plans to reduce income tax, at least for the majority of the population. The Conservative government froze income tax thresholds, including the personal allowance, starting from the 2021-22 tax year, and has confirmed it intends to keep them frozen until 2027-28.

This form of “fiscal drag” equates to a significant income tax increase in real terms. The Office for Budget Responsibility estimated that by 2028-29, some more 2.7mn people could be dragged into the higher rate of income tax (40 per cent) as a result. 

However, if they win the election, the Conservatives promised to increase the personal tax allowance for pensioners every year, so it rises in line with the state pension. The triple lock has increased the state each year by the highest of wage growth, inflation or 2.5 per cent, while the personal allowance has remained frozen. Quilter estimated that pensioners could start paying back a portion of the state pension in income tax in two years. 

Increasing the pensioner personal allowance in line with the triple lock would address this, but there would be complications to consider, including how to deal with people receiving the state pension who are still working, and the impact of keeping the personal allowance frozen for the rest of the workforce.

Labour has not matched the Conservatives’ promise to increase the personal allowance for pensioners. Shadow chancellor Rachel Reeves said she wants “taxes to be lower” and would like to increase income tax thresholds, but added she would not make any commitments where she “can’t say where the money is going to come from”.

Meanwhile, since last autumn, chancellor Jeremy Hunt has cut national insurance (NI) twice – employee NI went down from 12 per cent to 8 per cent. Hunt said he hopes to continue along this path if the Conservatives win the election, with the ambition to abolish NI.

Pensions

Both parties have committed to maintaining the triple lock. The state pension increased by a bumper 8.5 per cent in April, off the back of strong wage growth last year. As inflation normalises, the increase will likely be lower in April 2025.

Tom Selby, director of public policy at AJ Bell, suggested state pension age increases could come into focus, even though “neither party is likely to talk about it in their manifesto”. “The current state pension age is 66, with plans to raise this to 67 by 2028 and 68 by 2046. However, there have been calls from various quarters to accelerate that timetable to save the Treasury money,” he added

Labour had also pledged to reinstate the lifetime allowance (LTA) when chancellor Jeremy Hunt first abolished it last year. The LTA capped the amount people could have in their pensions without incurring a tax charge to £1,073,100. There is an argument for savers to make use of this break while it is still available, but the LTA is a complex area of pension planning and much depends on personal circumstances. Many have argued that bringing the LTA back would be difficult for Labour because of the technical complications involved. However, some academics have supported the move.

Andrew Tricker, director at Lubbock Fine Wealth Management, also argued people should make the most of the recent increase to the annual allowance by contributing “as much as they can afford” to their pension, in case Labour cuts it back. From 2023-24, the annual allowance rose from £40,000 to £60,000.

Capital gains tax

Reeves has ruled out additional tax rises if Labour wins, beyond the announced windfall tax on oil and gas profits, tougher rules for non-doms and the end of the VAT exemption for private schools – more on this below. But it remains to be seen whether Labour will be able to keep public services running and implement the promised improvements without further tax hikes.

Tricker warned about potential changes to capital gains tax (CGT). The annual CGT allowance has already been reduced, going from £12,300 in 2022-23 to £3,000 this year. But Tricker suggested that an increase to CGT rates could also be on the cards and that people who are thinking about taking profits from their investments anyway might want to do it before it materialises.

“Higher rate taxpayers currently pay a 40 per cent tax rate on income above £50,271, but only 24 per cent for capital gains on property and 20 per cent for gains from shares,” he said. “The disparity has fuelled persistent rumours that Labour could raise CGT rates to match income tax rates.”

Individual savings accounts

Labour has also hinted at plans to simplify Isas to make it as easy as possible for people to invest. It has not been made clear what this will look like, but the current Isa landscape includes at least one fairly niche product in the shape of the Innovative Finance Isa (Ifisa). 

The Lifetime Isa (Lisa) could also become a target of reform, something industry experts have long campaigned for. Lisas punish savers who need to take money out for reasons other than buying their first home or retirement with a 25 per cent tax charge, normally a higher sum than the original government bonus which investors receive.

Reports have hinted that Labour will push ahead with the current government’s plan to create a UK Isa and give investors an extra £5,000 allowance for domestic investments. This would ostensibly go against the party’s Isa simplification plans, but Labour has also said it is considering policy options to encourage both institutional and individual investors to invest more in UK capital markets.

Buy-to-let landlords

The Renters’ Reform Bill was not passed before Parliament was dissolved on 30 May. The bill was meant to introduce a series of tenant protections and originally intended to ban no-fault evictions, although this part of the legislation was later watered down. Ben Beadle, chief executive of the National Residential Landlords Association, said that the dropping of the bill means that “the market now faces yet more crippling uncertainty about what the future of the private rented sector looks like”.

Labour will probably look at creating a new version of the bill if it comes to power. The party has committed to banning no-fault evictions among other protections for renters and limits on landlords selling buy-to-lets. It could also decide to go further, with Reeves saying that while she is not convinced about rent caps as a blanket approach, they could be an option in certain local areas. 

School fees

Labour intends to start imposing VAT on private schools, likely resulting in a steep increase in fees. Carl Green, financial planning director at Evelyn Partners, said it is “unlikely that most private schools will be willing or able to absorb the entire cost of VAT being introduced on fees”. “Some of our clients have already received notification from their children’s schools that some or all of any VAT imposition would be added to fees on top of any customary annual rise,” he added.

In 2023-24, average day school fees increased by 8 per cent year-on-year to £18,064 a year, according to the Independent School Council’s annual census.