What a general election could mean for your finances

At just after 5pm on 22 May outside 10 Downing Street, a rain-soaked Rishi Sunak, the prime minister, announced that a snap general election will take place on 4 July 2024.

Needless to say, the move caught most of us off guard. Sunak has kept his word that voters will be sent to the polls in the second half of 2024, but only just.

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This means the Tories passed up the chance to use another Budget to sway voters, something that Chancellor Jeremy Hunt had previously signalled.

Perhaps the prime minister took stock of the past two set-piece fiscal events, which despite unveiling sizeable tax cuts for workers, failed to make a dent in Labour’s commanding lead.

Sunak and opposition leader Keir Starmer, who said this is “the moment the country's been waiting for”, now have six weeks to stake their claim to lead the country.

Big mission on growth

The Tory Party will almost certainly play to the UK’s recent upturn in economic fortunes: growth is picking up (albeit gradually) and inflation is back close to where it needs to be.

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Hunt recently quoted the International Monetary Fund’s (IMF) forecasts, claiming “the UK economy will grow faster over the next six years than in France, Germany, Italy or Japan”.

Meanwhile, the first of Labour’s five-point plan for growth is to put economic stability first.

This involves introducing a new “fiscal lock”, which according to Shadow Chancellor Rachel Reeves, provides a legal guarantee that any permanent and significant tax and spending changes will be subject to an independent forecast from the Office for Budget Responsibility (OBR).

The aim here, according to Reeves, is to avoid a repeat of then-Chancellor Kwasi Kwarteng’s September 2022 ill-fated mini-Budget; an event that had such catastrophic ramifications for the UK economy that both Kwarteng and then-Prime Minister Liz Truss both left their posts just weeks later.

Lifetime allowance to return?

The Tory Party’s decision to scrap the pensions lifetime allowance (LTA), which placed a cap on how much your pensions could be worth before being hit with hefty tax penalties, was warmly welcomed.

Increasing numbers of savers, including NHS doctors, were leaving the workplace to avoid breaching the LTA.

The hope was that this would create a simpler pension landscape, but the government’s decision to freeze the maximum tax-free lump sum at £268,275 has (although probably inadvertently) made things more complicated in some areas.

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Either way, the Labour Party has pledged to reinstate the LTA should it gain power. However, reports suggest the limit will be higher than the most recent LTA, which was £1,073,100, with a figure of £1.5 million put forward. Whether the maximum tax-free lump sum limit will be raised too is less clear.

In any case, any changes to the LTA are unlikely to happen before April 2026, so savers concerned about how this might affect them will have time to decide what to do with their pots.

One would hope that those who have pension funds that exceed the LTA limit would be offered some protection to avoid being retrospectively punished.

Future government hamstrung on personal taxes

Both parties appear to have conceded that there is limited scope for tax cuts. Shortly before this year’s Spring Budget, which took place on 6 March, the IMF urged Hunt to focus on economic matters rather than political ones and reiterated this stance last month.

In a blog post, the IMF said: “The record number of elections being held across the world in 2024 represents a salient risk with regard to fiscal consolidation prospects for the year.”

The focus should be on rebuilding the public finances, according to the IMF, and this will apply to whoever gains power.

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The IMF also said that the national insurance (NI) cuts recently administered by Hunt (at the second fiscal event on the trot) made any future personal tax giveaways much trickier.

One of the big recent talking points concerns frozen tax thresholds, otherwise known as fiscal drag. With bands set to remain static until 2028, millions of people are covertly being pulled into higher rates of tax.

While Labour is yet to issue anything firm on whether it will raise tax thresholds to keep pace with rising costs and wages, in response to Hunt’s 2024 Spring Budget, Starmer commented: “[The Conservatives] know the thresholds are still frozen, dragging more and more people into higher taxes.”

We will learn more once both parties publish their manifestos. But it wouldn’t be a surprise if tackling fiscal drag features prominently.

Will British ISA see the light of day?

The launch of a new British ISA (individual savings account) proved one of Hunt’s headline measures at this year’s first set-piece fiscal event.

According to the government, the new ISA, a separate £5,000 on top of the existing £20,000 annual allowance, “will provide a new tax-free savings opportunity for people to invest in the UK, while supporting UK companies”.

What range of investments will be allowed is still unknown. As well as UK-listed shares, the inclusion of gilts, corporate bonds and cash is being considered within the consultation, which started on 6 March and runs to 6 June.  

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What’s equally unclear is whether Labour will push through the British ISA if it triumphs in early July. Although the party is yet to issue a firm stance on the policy, earlier this year it said that it will seek to simply the existing ISA landscape, making it “as easy as possible” for savers and investors. 

The British ISA has already been divisive, with critics claiming it will make things more complex rather than simpler. Even before Hunt kickstarted the consultation, many ISA providers - including interactive investor – raised concerns that the number of ISA products makes it difficult for savers and investors to choose the right one.

Triple lock, auto enrolment and pot for life

In a welcome boost for pensioners, both the Tories and Labour have pledged to keep the state pension triple lock. As a reminder, the policy guarantees the state pension rises every year by the highest of inflation, average wage growth or 2.5%.

Hunt confirmed his party's position in March, while in late April, Labour committed to the triple lock for at least five years and is reportedly set to include this pledge in its forthcoming manifesto.

If successful in early July, Starmer and co will also take the baton on one of Hunt’s big recent retirement proposals - “pension pot for life”.

In short, this policy would allow savers to ask their employer to pay into a pension of their choice, instead of being forced to join their company’s scheme. The upshot here is that savers would no longer accumulate multiple pension plans during their working life, which runs the risk of pots being lost, misplaced, or forgotten about.

Much like the British ISA, the idea has both fans and critics. But which side Labour falls on is still unknown.

More broadly, the party has pledged to investigate whether the current pensions system supports the retirement aspirations of individuals. And no doubt weighing up whether “pot for life” fits the brief will form part of this review.

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Something else under scrutiny is the auto-enrolment framework. Under current rules, if an employee pays 5% of their salary (within certain limits), their employer must contribute 3%.

The Conservatives made some recent changes to the auto-enrolment landscape which were well received. This included lowering the minimum age from 22 to 18, and removing the lower earnings limit, which means that employees will begin contributing on the first pound earned.

However, many feel that these changes don’t go far enough, with further improvements to the auto-enrolment system needed.

There have been calls from various quarters to increase the minimum amounts, due to fears that workers who stick to them will reach retirement with insufficient savings.

While upping these limits still seems some way off, particularly as workers are still grappling with the cost-of-living crisis, back in October Labour implied it would seek to expand auto enrolment to self-employed workers.

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Exactly how this would be achieved is unknown. There are some practical hurdles to overcome here, not least that the self-employed don’t have regular earnings, making it tricky to deduct pension payments.