Boris Johnson and his new government: what it could mean for your money

25 July 2019

We run through some of the changes the new Johnson government might, or should, pursue

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As was widely expected, Boris Johnson won the Conservative Party leadership race, making him the next Prime Minister of the UK.

Mr Johnson’s tenure as Prime Minister is likely to be overshadowed by Brexit, just as it was for his predecessor Theresa May.

How Mr Johnson approaches Brexit will have significant implications for markets and by extension investors. Details, however, are still light and the markets response has been fairly muted so far.

According to Richard Pearson, director of Selftrade, an investment platform: “Investors should hang tight before building a portfolio full of Boris’ latest ideas.

But beyond Brexit, Johnson laid out a number of policy proposals which, if implemented, would have an impact on people’s personal finances and pensions.

Below, we run through some of the changes the new Johnson government might, or should, pursue.   

Tax changes

During the leadership race Mr Johnson promised to reduce Britain’s tax burden, most prominently claiming he would raise the threshold for the 40% higher-rate income tax from £50,000 to £80,000.

That would benefit roughly four million people, giving tax payers back £9 billion. That windfall, however, would not be evenly spread. According to the IFS, though, this will likely benefit roughly the top 10% of earners.

Perhaps with this in mind, Mr Johnson has also hinted an intention to increase the point at which national insurance contributions kick in, which should also benefit lower earners.

All this, however, is likely to be costly. As Tom Selby of AJ Bell notes: “While specifics were hard to come by in the Johnson campaign, the IFS estimates every £1,000 increase in the national insurance primary threshold - which currently stands at £8,632 – would cost the Treasury £3 billion.”

Added with the cost of cutting income tax, that leaves a potential blackhole in the treasury’s finances.

At the same time, with the prospect of either a no-deal Brexit or a general election on the cards, such expensive changes to tax may never see the light of day.

Stamp duty cuts

There has also been speculation that Johnson plans to scrap stamp duty on homes worth less than £500,000, saving buyers as much as £15,000.

The risk, however, is that scrapping stamp duty for certain homes will stimulate demand, further pushing up house prices – assuming little is done to address the stock of housing.

However, Mr Selby adds, scrapping stamp duty “would likely be one of a series of emergency Budget plans unveiled if the UK leaves the EU without a deal.” In such a scenario, support for house prices might well be needed.

Self-employed pensions

Another big area of focus for Mr Johnson should be the self-employed pensions gap, according to Jon Greer, head of retirement policy at Quilter.  

The self-employed are currently exempt from auto-enrolment. As a result, there are fears that there will be a growing gap between those who have contributed to a pension through auto-enrolment and those who are self-employed who have not.

This will cause problems for many later in life as the state pension will be unable to cover their costs of living.

However, as Mr Greer notes: “The government has made no meaningful progress on addressing the retirement savings gap for the self-employed, a policy which the Treasury and Department for Work and Pensions could have been expected to move forward before now”

Social care

Arguably, the unravelling of Mr Johnson’s predecessor was not Brexit but her attempt to address social care funding during the 2017 snap election.

The policy proposed was widely unpopular and dubbed the “dementia tax.”

The issue, however, has not gone away. This will be one of the major (non-Brexit related) challenges of Johnson’s government.

Mr Greer say: “The long-awaited policy green paper is still yet to appear so it will be up to the next chancellor to address the complex challenges around social care funding.”

Similarly, Helen Morrissey, pension specialist at Royal London, says: “We call upon the prime minister to devote some time to pressing issues such social care funding.”

Public sector pensions crisis

Senior public sector workers, such as doctors, often face tax penalties for accidentally breaching the limit for tax-free annual contributions to their pensions. 

The issue is the result of the tapering of the annual tax-free allowance for people who earn over £150,000.

This restriction combined with the pension lifetime allowance, which stands at £1.055 million, has led to some doctors opting to retire early or reduce their hours.

Those who breach the lifetime allowance are heavily penalised, with punitive tax charges of 55% due on money above the limit if it is taken as a lump sum, or 25% if it is taken as income.

Mr Johnson has promised he would address this.

According to Mr Selby: “This could then be used as a starting point for a broader review of the pension tax regime, with a central aim of simplification and increasing the number of people saving for retirement.”

Of course, as with other promises from Mr Johnson, it will mean more red ink for the treasury – around £1 billion, it is estimated.

This article first appeared on our sister website Money Observer

Comments

benefit payments

why should savers be penalized for making savings for the future, you pay all your taxes , you contribute to the society all your working life, but if you become disabled and cannot work, if you have more than £16000 in savings then you get no benefits or support from the council or dwp. it is disgustingthat savers are penalisedthose hiding their moey or smoking or drinking or gambling it away are supported. as are the immegrants legal and illegal. its about time the rules were re looked at

Contribution based ESA payments for special support groups

Does the government have any plans to increase contribution based ESA payments for people in support groups whose payments are drastically reduced or stopped altogether by receipt of a company pension taken early to make ends meet?

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