Election manifestos 2024: the impact on your personal finances

The political battle lines have been drawn after the Conservatives and Labour published their manifestos ahead of the general election.

The polls point towards a commanding lead for Labour, so it’s little surprise that Rishi Sunak’s promises are more gung-ho than Starmer’s – from a tax-cutting perspective anyway. Winning the hearts of swing voters is imperative if the Tories are to cling to power, while for Labour the tactic seems to be avoiding any slip-ups.

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I can’t possibly cover all corners of both lengthy documents, but let’s pick out the key pledges and analyse how these might impact your finances should either Sunak or Starmer roar to victory.

Personal taxes to be cut?

Whoever triumphs on 4 July will take on the biggest tax burden for 70 years, but is there room for giveaways?

Well, a bold Tory Party think so, but a cautious Labour does not.

Sunak has gone big, promising a tax-slashing package worth £17.2 billion a year by 2030. This includes a further cut to employee national insurance contributions (NICs) to bring the main rate down to 6% and to abolish the main rate paid by self-employed workers, currently 6%.

Reducing the tax paid by workers has been a dominant theme in the past two fiscal events – the 2023 Autumn Statement and this year’s Spring Budget. The NIC cuts administered have already shaved £900 and £600 off the average employed and self-employed worker’s tax bill, respectively.

Other tax cuts seek to support parents of young children.

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The prime minister has pledged to double the child benefit earnings threshold to £120,000 and move to a household system. This would be a vast improvement to the current system, despite the recent shake-up. At this year’s Spring Budget, Chancellor Jeremy Hunt raised the earnings threshold from £50,000 to £60,000, and expanded the upper limit from £60,000 to £80,000.

This means that for every £200 someone in the household earns above £60,000, you’ll pay back 1% of child benefit.

The move to a household system is something that’s long overdue, no matter who runs the country. As things stand, if one partner earns £80,000 child benefit is effectively wiped out by the High-Income Child Benefit Charge. However, if both parents earn £60,000, they swerve the charge, even though household income is £40,000 higher than the first example.

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There were also cuts to stamp duty for first-time buyers which I cover later.

The Tories feel this raft of cuts can be made possible by reforming the welfare system and cracking down on tax avoidance and evasion. According to Conservative calculations, this will free up £12 billion and £6 billion, respectively, by 2030.

In response to his rival’s manifesto, Starmer claimed, “the money isn’t there and that’s the major problem”, suggesting the pledged tax cuts are unfunded.

As such, Labour played things safe within their manifesto, fearing giveaways could trigger a repeat of Liz Truss’s disastrous 2022 mini-Budget - an event we’re still feeling the aftershocks from today.

Starmer did promise not to increase taxes on working people and businesses, meaning the top rate of corporation tax will be capped at 25%. The manifesto did say that corporation tax could be reduced if “tax changes in other countries pose a risk to UK competitiveness”.

The leader of the opposition also matched the Tories’ commitment not to raise income tax and VAT (although he did pledge to charge VAT on private school fees) and will implement a fiscal lock. This would mean every fiscal event that brings significant change to taxation or spending will be subject to an independent Office for Budget Responsibility (OBR) forecast.

While major reform to the inheritance tax (IHT) landscape was absent in both Labour’s and the Conservatives’ manifestos, the former will seek to end the use of offshore trusts used by wealthy members of society and large businesses to avoid the tax.

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Interestingly, there was no mention of capital gains tax (CGT) in either document, stoking concerns that hikes could be on the table during the next Parliament. Rumours have hung around for several years that the rates of CGT could be equalised with income tax. This would be a sharp hike from the rates of 10% and 20% that investors currently pay on stocks and funds held outside tax wrappers. This is purely speculative, of course.

But whoever wins power, our tax bills could still rise over the next few years. That’s because both parties have vowed to keep tax thresholds frozen until 2028, a concept known in industry jargon as fiscal drag.

Put simply, this means that even if headline rates of tax fall, rising personal income over time will push people into higher tax bands. This has already impacted millions of people since the decision was made to freeze thresholds in 2021 and will affect millions more during the coming Parliament.

Pensions and savings shake-up

With the grey vote in mind, both leaders have committed to the triple lock, which is great news for retirees. This policy guarantees the state pension uprates annually by the higher of inflation, wage growth or 2.5% and has delivered increases of 10.1% and 8.5% in the past two years.

But Sunak has gone a step further, pledging the ‘triple lock plus’. This will raise pensioners’ tax-free allowance every year in line with the state pension, softening fiscal drag for anyone aged 66 and above.

When it comes to your personal pension savings, there’s good stuff from both camps.

Starmer promised to launch a review of the pension landscape to identify what steps are needed to deliver better outcomes for savers – something which will inevitably include “pension pot for life”, which wasn’t specifically mentioned in either party’s document. Labour also outlined plans to boost pension investment in UK markets.

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One of the big talking points in the lead-up to Labour’s manifesto launch was whether the party would seek to reinstate the highly controversial pensions lifetime allowance (LTA). This placed a cap on what pension savings could be worth without being hit with punitive tax charges but was officially scrapped by the Conservatives in April this year.

However, just days before its manifesto was published, it was reported that Labour had scrapped plans for the LTA’s return, much to the relief of savers with large pension pots. And indeed, the LTA did not feature in Starmer’s manifesto.

Knowing the rules are unlikely to change, in the short term anyway, will make it easier for people to plan their retirements, a matter the Conservatives are conscious of too.

The party has pledged to implement a new pensions tax guarantee. This will involve: no new taxes on pensions; maintaining the 25% tax-free lump sum and tax relief on pension contributions at their marginal rate; and not extending NICs to employer pension contributions.

Aside from pensions, the Tories also said they “will support London’s position as the leading global market through the implementation of the Mansion House reforms and measures such as a retail sale of NatWest Group (LSE:NWG) shares”.

Support for budding homeowners

Labour and the Conservatives have made big commitments to help people on to the property ladder.

Rishi Sunak will permanently scrap stamp duty on homes up to £425,000 for first-time buyers and bring back the help-to-buy scheme, while Starmer will introduce a mortgage guarantee to support buyers with small deposits.

And both leaders have set themselves lofty house building targets over the next Parliament to increase supply. Labour unveiled plans to build 1.5 million properties, while the Tories committed to 1.6 million.

But it’s one thing promising to build lots more houses, and another thing delivering this promise. In its 2019 manifesto, the Conservative Party pledged to build 300,000 more homes a year by the mid-2020s but has come up short every year.

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In 2019-20 the figure was 248,591, and this plummeted to 217,754 in 2020-21; in no small part due to the Covid pandemic and the various working restrictions that came with it. And in both 2021-22 and 2022-23 the government built just shy of 235,000 houses – again well below target.

So, now it comes down to voters. It’s important to note these promises don’t have to be kept. And a great deal will change over the course of the next Parliament.

But the big question is, will Rishi Sunak’s manifesto prove persuasive enough for him to keep the keys to number 10? We’ll find out soon.