Christmas election looms

Suddenly, High Streets – or what is left of them – sparkle with Christmas decorations.

Yuletide is very much in the air.

Yet this year, with the passing of November 5, it is not just the joys (or woes) of Christmas that are fast approaching on the horizon.

We also have the thrill of a general election to look forward to and compete for our attention. 

Under the guidance of John McDonnell, Labour will usher in radical change that will put more power in the hands of the trade unions and workers

I am not particularly fond of Christmas, shuffled off as I usually am to a hotel I do not want to be in – while I have nothing but loathing for most politicians.

As I sit down to write this article, the political manifestos from the main parties have yet to be published.

Indeed, Labour (up until 11.59pm November 6) is still inviting the public to help write its 2019 manifesto so that it can “transform” the country.

For better? Or for worse? For you to answer.

Yet we already have a flavour of what we will get if either the Conservatives or Labour are in a position to form the next government.

Under the guidance of John McDonnell, Labour will usher in radical change that will put more power in the hands of the trade unions and workers.

Industries – starting with the railways and water companies – will be brought back into public ownership.

There will be welfare reform, higher income tax rates for those earning more than £80,000 a year and a curbing of the buy-to-let market.

Meanwhile, the main thrust of the Conservative manifesto will be focused on cutting taxes and raising personal allowances.

For financial advisers and aficionados, it will be any reform to inheritance tax and pension tax relief that will probably be of greatest interest.

On IHT, Labour has already declared its hand.

Earlier this year, in a document entitled Land for the Many, it recommended a sweeping away of the current IHT threshold, which currently stands at a maximum £475,000.

Instead, it said it would introduce a so-called lifetime gifts tax, meaning anyone inheriting more than its suggested £125,000 lifetime maximum would pay income tax on the surplus.

Labour’s number crunchers have calculated that it will reap a Labour government £9bn more in tax receipts in the tax year commencing April 6 2020 than if it continued with the current IHT regime.

The Conservatives, it seems, are more interested in preserving the existing regime, but simplifying it.

They could do this by axing taper relief and pruning the various gift allowances – recommendations already made by the Office for Tax Simplification.

With regards to any reform of pension tax relief, the parties have so far said very little, and it seems unlikely any major reform will make it into the manifestos of the Labour and Conservative parties.

A policy paper issued a few days ago by financial services mutual Royal London said as much.

The paper looked at what the parties – all the parties, not just Labour and Conservative – might say in their manifestos about pensions.

That is, state pensions (triple lock or no triple lock), possible state pension age increases, pensioner benefits (including the thorny issue of free TV licences for the over 75s), possible auto-enrolment changes, and of course the long-standing issues raised by Women Against State Pension Inequality.

On pension tax relief, Royal London’s assessment was to the point. 

It said that the topic, given short shrift in the Labour and Conservative manifestos of 2017, would be given the cold shoulder again.

It went on to say that the only party committed to major pension tax relief reform were the Liberal Democrats, which at its 2018 party conference said it would introduce a flat rate of tax relief on pension contributions (set at 25 per cent), while capping tax-free lump sums at £40,000.

The only pension tax relief reform likely to make it into the manifestos, said Royal London, would be related to NHS doctors and consultants, currently impacted adversely by the tapered annual allowance.

Of course, with votes to be won and lost, it is understandable that both Labour and the Conservatives are keeping quiet on any major plans to reform pension tax relief.

Yet there is no doubt that reform is long overdue.

The current pension tax relief system is wrong on so many levels.

It is unfair, far too complicated, and ends up discouraging rather than encouraging long-term savings.

As Royal London states in its policy paper’s conclusions: “A thorough review of pension tax relief, dealing with anomalies and ending the constant tinkering with the system, would be welcome.

“But this is the sort of thing which tends to be implemented by those who have won power rather than announced by those who expect to gain it.”

For that we must wait until 2020. Post-Christmas fare. I cannot wait. Bah humbug.

Jeff Prestridge is personal finance editor of the Mail on Sunday