Making sense of the manifestos

Making sense of the manifestos

As the December 12 elections draw closer, voters are trying to make sense of how the different parties’ manifesto pledges could affect their finances.

The Conservative party wants to raise the national insurance threshold to £9,500 next year from £8,632, with a future aspiration to moving the threshold to £12,500. 

Laura Suter, a personal finance analyst at AJ Bell, says: “Despite Boris Johnson previously pledging the £2.5bn plan would save taxpayers £500 a year, this initial move will save between £85 and £100, depending on whose estimates you believe. 

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“By shifting national insurance rates, rather than income tax thresholds, Mr Johnson extends the giveaway to the lowest earners.”

Labour wants to increase the number of people paying the 45 per cent income tax rate, cutting the threshold from £150,000 to £80,000, and introducing a new 50 per cent rate for those earning more than £125,000.

Key Points

  • All the main political parties have released their manifestos
  • Labour wants to raise personal taxes
  • Neither Labour nor Conservatives are grappling in enough detail with the tapered annual allowance or social care

Labour also wants to bring the tax on gains from investments in line with income tax – a move estimated to raise £14bn. 

Ms Suter says: “The move to crack down on dividends will hit business owners who pay themselves this way, and 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.”

Net pay

A lot has been said of the gender pensions gap, where women are at a disadvantage compared to men because of a loophole affecting people with net pay pension schemes. 

This is where an employee’s pension contribution is taken from their pay, before tax is applied, so they only pay tax on what is left. Basic, higher and additional taxpayers automatically save 20, 40 and 45 per cent respectively in tax relief. However, any employees earning less than £12,500 a year will not get relief because they do not earn enough to pay tax.

Rachael Griffin, tax and financial planning expert at Quilter, says: “The Conservatives have pledged to end a tax flaw that means that the lowest earning workers, the vast majority of whom are women, miss out on £8,000 in pension savings over the course of their working life. The issue needs to be addressed sooner rather than later.”

Ros Altmann, former pensions minister, says: “This is not just an ‘anomaly’; is it a significant injustice.” 

More than 1m workers are being charged an extra 25 per cent for their auto-enrolment pension.

For higher paid workers, the Conservative and Labour parties have laid out plans to tackle the tapered annual allowance issue, a problem particularly highlighted as affecting senior doctors.

The pension annual allowance is the annual limit on the amount of contributions paid to, or benefits accrued in, a pension scheme before the member has to pay tax.

On April 6 2016 the government introduced the tapered annual allowance for individuals with threshold income of over £110,000 and adjusted income of over £150,000.

For 2019-20 the government has pledged to make good any tax charges through higher pension benefits.