Labour has today published its election manifesto with plenty of proposals that could have a big impact on people’s finances and long-term savings.
The promise of a ‘green transformation’ of the economy and making the UK zero-carbon by 2030 has unsurprisingly grabbed the headlines.
But the party’s pledge to keep the state pension age at 66 is perhaps the most important for people’s long term savings, along with its restated pledge to hike income tax for high earners.
MARKET REACTION MUTED
Despite the ‘radical’ manifesto promising ‘real change’, as Labour puts it, market reaction has been muted with the benchmark FTSE 100 index barely moving.
This perhaps reflects the market view that there is a limited chance of Labour getting into power and/or of all the pledges in the manifesto being implemented.
Labour’s plan to freeze the state pension age is the most noteworthy announcement for long term savers, and conflicts with the current Conservative government’s plans to increase the state pension age to 67 and then 68, the first increase since the Second World War.
FREEZING PENSION AGE A 'GARGANTUAN PROMISE'
AJ Bell senior analyst Tom Selby said freezing the state pension age is a ‘gargantuan promise’ from Labour, with ‘enormous ramifications for those affected, society as a whole and long-term government spending.’
He added, ‘It’s also important to remember that planned state pension age increases to 67 and 68 are not just based on the last few years’ data, but decades of life expectancy improvements.
‘If state pension increases are to be permanently shelved, Labour needs to explain who will pay the extra cost in the long-term.’
Labour has also stuck to its 2017 manifesto pledge to increase the number of people paying the 45% income tax rate, cutting the threshold from the current £150,000 level to £80,000.
It would also introduce a new 50% rate for those earning more than £125,000 a year, a move which would cost taxpayers £4.5bn.
CRACK-DOWN ON DIVIDENDS
Labour would also bring the tax on gains from investments into line with income tax, with capital gains and dividends being rolled into the income tax regime, raising £14bn for the government.
AJ Bell’s personal finance analyst Laura Suter said the move to crack down on dividends will hit business owners who pay themselves through dividends rather than income, but also investors, with the capital gains tax allowance being slashed from £12,000 to £1,000 - which will cost up to £4,400 a year for those earning £50,000 or more.
The party also plans to restore pension credit for mixed-age couples, and will review pension tax incentives with a focus on the problems facing the NHS, as thousands of doctors refuse extra shifts due to the impact of the annual allowance taper.
