After their landslide election victory last week, the new Chancellor, Rachel Reeves, has pledged to “fix the foundations” of the British economy in a bid to drive growth. We take a look at what a Labour government could mean for your finances.
Tax policies: Stability and potential changes
Labour’s 2024 manifesto promised not to increase National Insurance, the basic, higher, or additional rates of Income Tax, or VAT. However, millions might face a higher Income Tax burden due to fiscal drag, as the party plans to continue the Conservatives’ freeze on the Personal Allowance and the thresholds at which higher and additional rates of Income Tax are charged.
The party has offered no assurances about changes to Stamp Duty, CGT, and Inheritance Tax, except for ruling out applying CGT to primary residences. New Prime Minister, Keir Starmer has indicated that the temporary increase in the Stamp Duty threshold for first-time buyers will revert to its previous level of £300,000 in April 2025, down from the current £425,000.
Labour aims to address “unfairness” in the tax system. Rachel Reeves could look to introduce measures such as:
– Abolishing non-dom status
– Ending the use of offshore trusts to avoid Inheritance Tax
– Removing private schools’ VAT exemption and business rate relief
Pension Policies: Triple Lock and Reviews
Labour has committed to maintaining the State Pension triple lock, ensuring the State Pension rises each year by the highest of inflation, average wage increases, or 2.5%. This policy is likely to remain until at least 2030.
They confirmed they will not reintroduce the pension Lifetime Allowance (LTA) charge, providing certainty for savers. Jeremy Hunt removed this charge in April 2023 and abolished the LTA in April 2024.
At this stage we are unsure whether there will be any changes to:
-Lump sum allowance
-Targeting pensions for IHT
-Minimum employer contributions under auto enrolment
-Pension contribution tax relief or allowances
The party plans to review the private pension system, aiming to deliver better outcomes for savers and retirees while bolstering security in retirement. Reforms are unlikely before the 2025/26 tax year.
It is also in their plans to ensure workplace pension schemes benefit from consolidation and scale to deliver better returns for savers, increasing productive investment in the UK.
For any pension changes made, they will need to be well thought out and any major changes could take time to implement as the legislation can be complex. Pension changes will impact people in different ways so it’s important to seek advice to ensure you’re making the right decisions as and when the changes come into force.
Housing Market: Interest Rates and Ambitious Targets
With inflation reaching the Bank of England’s 2% target, a cut in interest rates is expected. This could reduce borrowing costs for those on tracker- or variable-rate deals and might help secure cheaper fixed-rate mortgages in the future.
Labour aims to address the property shortage by pledging to build 1.5 million homes over the next five years. Their policies include:
– Reintroducing mandatory local housing targets
– Funding additional council planning officers
– Reviewing green belt boundaries to prioritise brownfield and “grey belt” land
– Publishing new design codes to improve property quality
They plan to give young people priority in new housing developments and introduce a permanent Freedom to Buy mortgage guarantee scheme to help those struggling with deposits.
Employment: Enhancing Rights and Minimum Wage
A new “Deal for Working People” is planned with Labour stating they will introduce legislation within the first 100 days to:
– Ban zero-hours contracts
– End “fire and rehire” practices
– Introduce parental leave, sick pay, and unfair dismissal rights from day one
The party plans to reform the minimum wage into a “genuine living wage,” removing age bands so all adults receive the same rate, potentially increasing salary costs for businesses employing younger workers.
Upcoming Budget: Key Dates and Expectations
The King’s Speech on 17 July will outline the new government’s legislative agenda. Labour’s first Budget, likely in October or November, will be the first major fiscal event under the new administration, with policies probably taking effect in the 2025/26 tax year. Labour has committed to one major fiscal event annually, giving families and businesses ample time to plan for tax and spending changes.
Get in touch
As Labour takes charge, the financial landscape in the UK is set for significant changes. Whether it’s tax policies, pension reforms, or housing market initiatives, staying informed will help you navigate the evolving economic environment. For further information or advice on any of the issues discussed above, please get in touch by emailing enquiries@pmm.co.uk or calling 01254 679131.
