The Tory leadership contest came to a close today (July 23) with Boris Johnson winning the race, meaning the former Mayor of London and foreign secretary is set to become the UK’s new prime minister tomorrow.
As Mr Johnson selects a new cabinet and sets out his agenda for the coming months, advisers have urged the new prime minister to tackle a range of financial issues from pensions problems and regulation.
1 Pensions tax relief changes
Advisers said the tapered annual allowance — which gradually reduces the allowance for those on high incomes — was most in need of reform.
Introduced in 2016, it hit the headlines when concerns about doctors’ and teachers’ pensions were raised and it emerged doctors were refusing shifts to avoid high tax bills.
The tapered annual allowance means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost, meaning high earners are likely to suffer tax charges.
Mr Johnson has previously vowed to make changes to overcome this problem and advisers now urged the new prime minister to follow through on the promises.
Darren Cooke, chartered financial planner at Red Circle Financial Planning, said: "Looking at the annual allowance and the tapered annual allowance should be a priority.
"The current system does not work and we need to scrap the tapered annual allowance which causes problems with teachers and doctors. The government should also reduce the annual allowance slightly."
Martin Bamford, managing director of Informed Choice, agreed, adding he would like to see Mr Johnson and his top team tackle the fallout from the pension freedoms and especially the rising levels of pension fraud.
He added: "It would also be positive to see the new Chancellor reform tax relief on pension contributions, to encourage greater levels of private pension provision."
Tom Selby, senior analyst at AJ Bell, thought there was a six out of 10 chance of Mr Johnson sorting the problems caused by the tapered annual allowance while Helen Morrissey, pension specialist at Royal London, called upon the new government to devote some time to the pensions bill.
2 Restrained regulation
Advisers also flagged that a slowdown on extensive regulation in the financial sector would be a good move for the new prime minister.
Paul Stocks, financial services director at Dobson & Hodge, said he has been an independent financial adviser for the past five years and in that time has seen “more and more regulation” but also “more and more consumer cost, detriment, fraud and losses”.
He said he would like to see regulation that is demonstrably in the consumer’s best interests, rather than “rafts of legislation that heap more and more costs on firms” with “no real consumer benefit”.
Such legislation should also have a focus on stamping out fraud, according to Mr Stocks.
Mr Cooke also thought regulation was an issue. He said: “I would like Mr Johnson to scrap Mifid II rules, especially some of the ways the reporting is done in regards to fees."
3 Income tax simplified
At the start of the leadership contest, Mr Johnson promised to raise the 40 per cent income tax threshold from £50,000 to £80,000 which would benefit the top 10 per cent of earners to the tune of almost £2,500 a year.
Mr Johnson also hinted National Insurance thresholds could be raised to help pay for the measure and at the same time, signalled his intention to increase the point at which NI payments kick-in to boost lower earners.
According to Mr Bamford, it was likely Mr Johnson would push through with such “feel good measures” and that his new chancellor was likely to be more proactive than Philip Hammond.
Mr Selby agreed, putting the likelihood of the new prime minister following through on this at seven out of 10.
David Hearne, director at Wealth Management Adviser, also welcomed such plans. He thought equalising income tax and national insurance bands while tackling the pensions freedom problems would simplify the system.
He added: “As financial planners, our time with clients is much better spent planning for their changing lives, than dancing though a complex web of taxes and allowances.”
4 A stamp duty shake up
Another part of Mr Johnson’s economic plan could include “putting rocket boosters under the property market” by reforming stamp duty, according to AJ Bell’s Mr Selby.
One idea floated was to scrap the transaction tax on homes worth less than £500,000 while others said the new top dog in parliament would back switching the tax liability from the buyer to the seller.
Shaun Church, director of Private Finance, said: “For too long stamp duty has stagnated the UK housing market. Last-time buyers in particular remain stuck in homes too large for their needs that are too costly to give up.
“We’re calling for a last-time buyer exemption to be included as part of Johnson’s stamp duty overhaul, encouraging empty nesters to downsize to homes more suited for their future needs, freeing up crucial housing stock for the wider property ladder.”
Mr Selby thought there was an eight out of 10 chance of Mr Johnson reforming stamp duty.
5 Brexit delivered
The UK’s ability to leave the EU with a deal was also high on advisers’ agenda.
Philip Smeaton, chief investment officer at Sanlam UK, said all eyes were on Brexit and how Mr Johnson would attempt to navigate an unwavering EU and parliament without triggering an early election.
But he added although the next couple of months would be highly charged and divisive, for the markets it was likely to be “business as usual”.
Martin Stewart, director at London Money, said he wanted to see a solution to the “elephant in the room” of Brexit, which was causing a drag on investment, housing and consumer confidence.
He added: “I think the majority can accept some form of withdrawal from the EU but certainly not at any cost. It has been the overriding, suffocating feature over the past three years and it’s time now for us all to move on.”
imogen.tew@ft.com
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