Your money and Labour’s first 100 days in power

Prime Minister Keir Starmer promised “sunlight of hope” after Labour roared to a landslide election victory in early July, ending 14 years of Conservative rule. But the new government’s first 100 days in power have been, well, kind of gloomy.

This hasn’t happened by accident. Rather, it is the picture Labour felt it had to paint, given the state of the public finances the party claims it inherited from the Conservatives.

Let’s look back on the events that have occurred since 5 July and examine the immediate and potential future impact on your personal finances.

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Short-term pain for long-term gain

Labour has made its economic strategy over the current Parliament clear: short-term pain for long-term gain. The party says Britain’s foundations must be ripped out and rebuilt. And some of the early building blocks have been well received:

• A landmark pension review has been launched, aiming to “boost investment, increase saver returns and tackle waste in the pensions system”. Chancellor Rachel Reeves appointed the Minister for Pensions, Liz Kendall, to lead the review.
• In a speech on 30 July, Secretary of State for Housing, Communities and Local Government, Angela Rayner, set out the government’s intention to publish a long-term housing strategy.
• The government scrapped plans to introduce a controversial British individual savings account (ISA) - which would’ve given investors an extra £5,000 a year to invest in UK-listed companies - despite previously saying it intended to push through the policy. I guess whether this sits in the “well received” camp depends on whether you have scope to invest more than £20,000 into ISAs annually. Either way, the idea was riddled with complexity.

There was also long-awaited cheer for borrowers, after the Bank of England – an independent body since 1997 – cut interest rates for the first time in four years. Those on variable rates, with fixed-rate deals expiring soon and first-time buyers will be hoping the Bank Rate comes down further in the final two Monetary Policy Committee (MPC) meetings of 2024.

Lastly, the government settled a number of long-running public sector pay disputes, namely junior doctors whose salaries will rise 22.3% over the next two years.

Revealing the black hole

But pretty much everything else during Labour’s first 100 days has been bleak.

The biggest development came in late July after Reeves announced a Treasury audit had revealed a £22 billion “black hole” in the public finances. This was left by the Tories, according to the chancellor, but her predecessor Jeremy Hunt staunchly refuted this claim, dismissing it as “absolute nonsense”.

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Roughly a week after the revelation, Institute for Fiscal Studies (IFS) director Paul Johnson, in an article for the Times, said that despite the political finger-pointing, the blame should be shared.

“Frankly, nobody comes out of this smelling of roses. Not the Conservatives who really did leave a lot for the new government to clear up, and were not honest about the challenges ahead. Not Labour, which knew the broad outline of these challenges, but refused to confront them in its manifesto and pre-election statements”.

Taxes to rise at ‘painful’ Budget

Either way, the Treasury’s books need to be balanced, according to Reeves, who has been consistent in her stance that this requires a combination of spending cuts and tax rises.

We’ll learn more at the new government’s first Budget on 30 October. And according to Starmer, it’s going to be “painful”, which has sent the tax-hiking rumour mill into overdrive.

However, Labour’s manifesto pledge not to increase the headline rates of income tax, national insurance (NI), VAT, and business taxes means its options are limited. These taxes make up a large chunk of the Treasury’s annual receipts, which means the chancellor must turn her attention to other, less lucrative areas.

In his rose garden speech, the prime minister said those with the broadest shoulders should bear the heaviest burden, which has fuelled reports that reforms to capital gains tax (CGT), inheritance tax (IHT) and pension taxation are on the government’s radar.  

Over the past couple of months, a rumour for every nook and cranny of the wealth and pension tax systems has emerged, making it tricky to determine which have weight and which are pure speculation.

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Proposals from think tanks and other independent research organisations have played a key role in what has surfaced. The Fabian Society published an incredibly controversial report on how to reform pension taxation, the IFS in separate papers urged Labour to reform CGT, IHT and pension tax, and the Resolution Foundation suggested that tax-free ISA values should be capped at £100,000.

Still, there has been no firm word from the government about which specific parts of the tax system are in its sights.

What we do know is that increases to wealth and pension taxes would be deeply unpopular. Spooked savers are already raiding their pensions in fear the tax-free cash element will be reduced or scrapped, while investors are selling shares and second homes to lock in the current rates of CGT. Reports suggest the CGT regime could be equalised with income tax, which, if it came to pass, would vault the top rate to the highest in Europe.

British Prime Minister Keir Starmer and Chancellor Rachel Reeves at the Labour Party Conference in Liverpool in September 2024. Photo: Rasid Necati Aslim/Anadolu via Getty Images.

Winter fuel fiasco and private school fees

Labour’s move in mid-August to axe winter fuel payments - which are either £200 or £300 to help towards heating bills - for 10 million pensioners proved they’re not afraid to split the crowd.

The government reckons this will save £1.3 billion a year, but the move has been deeply controversial, irking some party members and the unions. One MP, Rosie Duffield, reportedly quit over the fiasco, while the volume of claims for pension credit has rocketed as you’ll now only get the allowance if you receive certain benefits.

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The government has already proposed to introduce VAT on private school fees as the party promised it would. This policy has faced plenty of opposition too, with reports that the planned implementation date of 1 January 2025 might be pushed back due to legal challenges citing a breach of human rights.

‘Free the sausages’

Unions’ victory in a non-binding vote to reverse the decision to scrap winter fuel payments was one of the few talking points in an otherwise tame annual Labour party conference held late September.

Given Starmer won a parliamentary vote on the matter in August, the odds of a U-turn here are slim to none.

However, this fiasco was overshadowed by Starmer’s now infamous sausage gaffe. In a slip of the tongue during his conference address, the prime minister called on Hamas to return the “sausages” instead of the “hostages”. He later admitted to “mangling” his words.

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The event was also clouded by accusations about MPs failing to disclose freebies, which included clothes and football tickets, as well as the news that nurses had rejected a pay deal which surfaced while Reeves was on stage.

What many people really wanted from the conference was some indication about which taxes might rise on 30 October. But unfortunately, yet again, any clues here were strikingly absent.

In her speech, Reeves said her optimism for Britain burns brighter than ever and that the tough times that lie ahead will be worth it in the long run.

But it seems the country, and notably taxpayers, will spend some time in the dark before sunnier days arrive.