The price of politics on Financial Services
Whilst we’re in the grips of a hung parliament and the shape of the future government
is still to be defined, we thought it would be good to look at the policies of the three
parties. In particular, how they’ll affect the economy and the financial services
industry in particular.
Here’s a quick overview of the likely changes that the three main parties will attempt
to bring in over the next parliament, so long as anyone party has a clear majority.
Economy
All three parties have said that fiscal tightening will be the mainstay of the next five
years and that the UK has to curb it’s reliance upon debt, however they all disagree
on the amount and none have yet outlined just where the big cuts will come from.
Conservative Labour Liberal Democrat
Aim to eliminate "the bulk" of Targeted" increase in public Identify and cut £15bn per year
the UK's structural deficit spending over the next year to of lower priority spending to
within five years beginning in "sustain the recovery", before protect front-line services while
2010 with £6bn in cuts. cutting the deficit by more than reducing structural deficit at
50% by 2014 and reducing the least as fast as Labour plans,
Scrap Labours planned 1% structural deficit by at least beginning in 2011.
national insurance rise for two-thirds over the next
people earning less than parliament. Redirect £3.1bn of public
£35,000. spending for a one-year
1% National Insurance "Green Stimulus", investing in
Scrap Stamp Duty for first-time increase in 2011. green technology to create
buyers on homes up to 100,00 jobs.
£250,000. 1% cap on public sector pay
rises for 2011-12 and 2012-13. Set a £400 pay rise cap for all
Cut civil service costs by a public sector workers.
third over five years. Protect "frontline investment"
in childcare, schools, the NHS Limit the length of time
Set up an independent Office and policing. taxpayers are allowed to claim
for Budget Responsibility to "non-domiciled" status to
oversee the public finances. Set up a fund to channel £4bn seven years.
of public and private
Create a new Consumer investment into firms. "Restrict" tax credits.
Protection Agency to avoid
repeat of financial crisis. Increase the National Minimum Force regulators to consider
Wage at least in line with the public interest when
Freeze public sector pay for average earnings over the assessing takeover bids.
one year in 2011, excluding period to 2015.
the one million lowest paid
workers. Ensure that when someone
comes off benefits, his or her
family will be at least £40 a
week better off through tax
credits and minimum wage.
Banking
All three parties have said that reform amongst the banking sector is necessary.
But there is dispute over supervisory responsibility, introduction of banking levies
and the extent of bank break-up needed.
Conservative Labour Liberal Democrat
Bank of England to supervise Compel banks to keep more Supported Labours fiscal
banks. capital and create 'living wills' stimulus and bank bail-outs,
to ensure any failures do not but would have nationalised
Push for an international threaten the financial system. failing banks.
agreement to stop banks
engaging in large-scale trading Work internationally to Introduce a banking levy until
using their own money and a introduce a "global levy" on such time as banks' retail and
global levy on banks. financial services. investment arms can be
separated.
Break up banks in which the
Government currently has a
controlling stake.
Pensions
Whichever party forms the next Government will have to face up to this looming
pensions cloud over the economy. Rises in retirement age are going to happen,
but how they are introduced will differ. Dependant upon who holds the in power.
One of the thorniest issues will be the future of public sector pensions covering
areas like the health service. Whichever way, the outcome of the general election
is likely to have some major ramifications for pensions policy.
Conservative Labour Liberal Democrat
Restore the link between the Restore the link between the Immediately move to increase
state pension and earnings. state pension and earnings by the state pension annually by
2012 and increase pension whichever is the higher of
Bring forward the rise in the credit in line with earnings. growth in earnings, growth in
state pension age to 66, prices or 2.5%.
although no sooner than 2016 Increase pension age for
for men and 2020 for women. women to 65 in 2020 and to 68 Restrict tax relief on pension
for both men and women contributions to the basic rate.
Look at how to abolish the between 2024 and 2046.
default retirement age, to allow In the long-term, introduce a
older people who wish to carry Require employers to Citizens Pension that will be
on working to do so. automatically enrol employees paid to all UK citizens, based
into either an in-house pension on residence, not contribution
End compulsory annuities at scheme or the state-run history.
75. Personal Accounts scheme
Use savings from public sector
Simplify the rules to encourage Look at ways to abolish the pension reform to boost the
companies to offer pension default retirement age. state pension.
schemes.
Give older people the right to Scrap the default retirement
Cap public sector pensions request flexible working, if they ages.
above £50,000. wish to look after
grandchildren. Allow older people to draw part
Support auto-enrolment for low of their private or occupational
and middle income earners pension whilst working part-
into employer-run pension time.
schemes..
Scrap the rule forcing people
to buy an annuity when they
reach age 75.
Healthcare
There are some big similarities: All support a tax-funded NHS, free at the point of
treatment, using private sector companies to provide care when needed and
protecting the NHS budget to some degree as public finances are squeezed. Both
the Lib Dems and Conservatives say they would cut bureaucracy, at the
Department of Health and in quangoes. However, that is still a relatively small
proportion of health service spending overall. There are tough financial times
ahead for the NHS, and relatively little detail from any party about exactly how
they will deal with that.
Conservative Labour Liberal Democrat
Spending cuts in all areas Protect "frontline" NHS from Create democratically elected
apart from health and foreign spending cuts. local health boards with power
aid. to prevent hospital closures.
Guarantee cancer patients will
Increase health spending in see a specialist within two Reduce number of health
real terms every year to 2015. weeks of diagnosis and get targets.
test results within one week.
Replace 'process' targets, Introduce "patient contracts"
such as maximum time before Give patients requiring elective specifying what patients can
seeing a cancer specialist, with care the legal right to choose expect from NHS.
'outcome' targets, such as from any provider who meets
number of people dying from NHS standards of quality at Extend access to end-of-life
cancer. NHS costs. services and hospices.
Allow patients to choose any Offer everyone between 40 More cost-effective purchasing
healthcare provider that meets and 74 free, five-yearly NHS of drugs, including greater use
NHS standards. health check. of generic drugs.
Implement a 'payment for Give all patients access to a Establish an independent
results' system throughout GP practice in their area that is commission, with cross-party
NHS. open at evenings and support, to develop proposals
weekends. for long-term care of the
Ensure that every patient can elderly.
access a GP in their area Provide free personal care
between 8am and 8pm, seven indefinitely for those in highest Scrap Strategic Health
days a week. need from 2011. Authorities.
Cut the cost of NHS Meet elderly people's care
administration by a third. costs after they have spent two
years in residential care from
Create an independent NHS 2014.
board.
Establish a "National Care
Allow retirees to prevent their Service" free at the point of
homes from being sold to fund use for all adults with an
residential care costs by "eligible care need", with
paying a one-off premium of funding arrangements decided
£8,000 at retirement. by a Commission by 2015.
Reject any proposals to fund
care by levying charge on
elderly people’s estates after
death.
Savings / investment
There are some surprising differences in the manifestos when it comes to personal
finances. Most people won't be surprised to learn that all the main parties are saying
that the brunt of tax rises will fall on the higher paid. But they may be surprised that
those on lower and middle incomes could actually be better off under a Conservative
or Liberal Democrat Government.
Conservative Labour Liberal Democrat
End government contributions Protect the Child Trust Fund End government payments
to Child Trust Funds for all but into Child Trust Funds.
the poorest third of families Would not increase CGT from
and families with disabled its current rate of 18%. Want to increase Capital gains
children. tax to the same level as
Pledged to not raise income income tax, which could see
Will scrap the planned 1p tax. CGT rise to as much as 50%.
increase in National Insurance
next year will put an additional The party has pledged to make
£150 back into the wallet of a the first £10,000 of earnings
single, middle-income worker tax-free, up from the current
earning up to £40,000. level of £6475.
This will create a tax cut of
£700 for most people and give
an incentive to work and save.
Taxation
Even before the new party (or parties) in power get round to any additional
spending cuts, the outcome of election night could be a changing value of the
pound, loss of some tax relief on pension contributions and even an unexpected
rise in the cost of home loans.
Lib Dem’s manifesto outlined substantial tax hikes for the wealthy to fund tax
cuts for lower earners. Many IFAs are concerned that policies such as scrapping
higher-rate pension tax relief and hiking capital gains tax would be extremely
detrimental to their clients
. Conservative Labour Liberal Democrat
Raise Inheritance Tax Introduced 50p tax rate on Raise the threshold at which
threshold to 1m. earnings over £150,000 and people start paying income tax
one-off tax on bankers' from current levels to £10,000.
Cut headline rate of bonuses.
corporation tax to 25p and the Impose "mansion tax" on the
small companies’ rate to 20%. Pledge not to increase income value of properties over £2m
tax or extend VAT to food, and increase capital gains tax
End tax credits for families children's clothes, books, to bring it into line with income
earning over £50,000. newspapers and public tax.
transport.
Recognise marriage in the tax "Restrict" tax credits to "those
system by allowing adults who Reject Conservative plans to who need them most".
are married or in a civil "recognise" marriage in the tax
partnership to transfer up to system. Fix the payments of tax credits
£750 of their tax-free personal for six months at a time so that
allowance to their spouse, as payments are stable and
long as the higher-income predictable.
member of the couple is a
basic-rate taxpayer.
End the "couple penalty" for all
couples in the tax credit
system.
New businesses will pay no
National Insurance (NI) in their
initial year for the first ten
employees, during the opening
two years of a Conservative
government.
