From benefits to childcare and pensions – how a Labour government would affect your finances
VOTERS are heading to the polls today and Labour is widely expected to win the election.
Sir Keir Starmer‘s Party has made a number of promises to voters to help put extra cash in their pockets.
But it can be difficult to know what these policies would mean for your money in reality.
Here, we delve into each of Labour’s manifesto pledges and explain how they would impact your finances.
PENSIONS
Like the Conservative Party, Labour has promised to keep the pensions triple lock in place, which would be good news for pensioners worried about the cost of living.
The “triple lock” ensures the state pension doesn’t lose value by increasing it each year in line with inflation, average earnings, or by 2.5% – whichever is higher.
Labour did not match the Conservatives’ pledge to increase the tax-free personal allowance for pensioners in line with the state pension.
At the moment the state pension is £11,502 a year and the personal allowance is £12,570.
The Office for Budget Responsibility (OBR) has warned the state pension will overtake the personal allowance by 2027.
This could mean retirees who only rely on the state pension could face paying tax in the near future.
Labour also promised to conduct a review into workplace pensions with the aim of increasing people’s pension savings.
It said in its manifesto: “We will undertake a review of the pensions landscape to consider what further steps are needed to improve pension outcomes and increase investment in UK markets.”
However, it has not yet provided further detail on what this review will entail.
The party added that it would give the Pensions Regulator, which oversees workplace pension schemes, new powers to intervene where schemes fail to offer good value for their members.
Labour also did not include plans to reintroduce the pensions Lifetime Allowance (LTA), which caps the amount you can save into your pension over your lifetime without paying tax, in its manifesto.
The Tories abolished the LTA from this year, but Labour had previously said it planned to bring it back.
TAX
Labour has promised it will not increase income tax, National Insurance or VAT.
However, independent think tanks predict taxes will go up under Labour – but they haven’t admitted which ones yet.
The party did not commit to ending the existing freeze on tax thresholds any earlier than April 2028 – the time frame set by the current Government.
This means more of your income will end up in the taxman’s pocket as earnings increase over time as if your wages increase but tax thresholds stay the same, you could be dragged into a higher tax bracket.
Myron Jobson, senior personal finance analyst at broker interactive investor, explained: “Labour has ruled out increasing the rate of major taxes but has confirmed that freeze in income tax thresholds will remain until 2028.
“This means more of our income will end up in the taxman’s coffers as earnings increase over time, as your pay rises with inflation, but tax thresholds remain the same.
“Known as fiscal drag, it is a sneaky tax grab that is set to hit those in the lowest income brackets the hardest.”
The party also promised to close loopholes which allow some ultra-rich people who live in the UK to avoid paying tax.
CAN LABOUR KEEP ITS PROMISE NOT TO RAISE TAXES?
LAURA SUTER, director of personal finance at AJ Bell shares her view on whether or not Labour can keep its promise to not raise taxes.
“We’ve heard from previous governments that they won’t raise taxes – and then we have been landed with higher tax bills by stealth or broken promises,” she said.
“The Conservatives pledged not to raise taxes, but instead froze income tax bands to introduce a tax raise through the back door.
“At the time, they also pledged not to raise National Insurance, before increasing the rates for the short-lived Health and Social Care levy – albeit the government eventually came full circle with the recent cuts to NI rates.”
She added: “Recent history shows us that when a political party pledges no tax rises it’s unlikely to stick to it 100%. While they may not explicitly raise the taxes they’ve singled out, the door is still open to tax rises elsewhere.
“One clear example already is that Labour have pledged not to increase income tax, but they haven’t laid out plans to end the threshold freeze, which means people will be paying more tax than they would have if the thresholds had increased with inflation.”
“The reality is that whoever comes into power this week is faced with a very small budget for spending unless they raise taxes. It means that if they want to spend on public services or hand tax breaks to certain groups they’ll need to raise money from somewhere, and tax rises are an easy way to do it.”
CHILDCARE
Labour has pledged to revamp the UK’s childcare system and tackle child poverty, including by providing free breakfast to every primary school child.
As part of its manifesto, the party promised:
- Spare school classrooms will be converted into spaces for nurseries, paid for by ending the tax breaks on private schools
- Three thousand new nursery classes across England to open up access to childcare hours for families
- Support three quarters of a million more parents to re-enter the labour market
- Provide free breakfast clubs in every primary school in England, paid for by ending tax loopholes and clamping down on tax evasion
- Breakfast clubs to drive up attendance and standards and improve behaviour and attainment
Sarah Coles, head of personal finance at Hargreaves Lansdown, said: “There were clearer pledges for parents [in Labour’s manifesto] – including breakfast clubs in primary schools, the right to parental leave from day one of starting work, and protections against discrimination against pregnant women.
“When added to the roll out of free childcare to all children over nine months, this could make a significant difference to families.”
BENEFITS AND INCOME
Labour’s manifesto pledged to reform welfare and tackle poverty, with the aim of reducing the number of people relying on food parcels and increasing the number of people in work.
This included a review of Universal Credit, although the party did not give much more detail on what that would entail.
Ms Coles explained: “A big part Labour’s pledge is also encourage more people into work, and make changes to the workplace to ensure fewer working people need state support.
“This includes things like ensuring the minimum wage takes account of the cost of living, and ending age bands, so all adults receive the same minimum wage.”
Labour has also pledged to end zero hours contracts, end “fire and rehire” and introduce rights to parental leave, sick pay, and protection from unfair dismissal from day one, Ms Coles said.
“However, despite being a major factor in child poverty, it has not pledged to end the two-child policy – limiting benefits to the first two children in a family,” she added.
HOUSING AND RENTING
One of the big cost of living burdens over the past few years has been the increased cost of housing.
Mortgage rates have risen significantly meaning homeowners have to pay far more each month, while rental costs have also risen.
Labour has promised to build 1.5million homes with the aim of getting more people on the property ladder.
The party has also said new buyers will get first dibs on properties in new developments before they are sold to overseas investors.
Ms Coles said: “Labour is focusing on building more affordable housing, prioritising first-time buyers, and reforming planning to speed things up.”
Meanwhile, Richard Donnell, executive director for research at Zoopla, said Labour’s growth agenda is “positive” as long as it is delivered.
“The growth agenda is positive but needs delivering – the housing market is an extension of the economy so a growing economy and wealth creation is good for homeowners,” he said.
Elsewhere, the party also plan to launch a “Freedom to Buy” scheme to help people secure a mortgage.
Donnell says this mortgage guarantee scheme may help 5% of first time buyers a year.
“However, the pressure is still on new buyers to enter the market with chunky deposits unless we really boost the supply of more affordable homes to buy and rent,” he added.
For renters, the party promised to end the much-maligned leasehold system, where homeowners do not own the land their property is built on, and would tackle unaffordable ground rents.
It also confirmed it will ban no-fault evictions to make it harder for landlords to remove tenants without a good reason.
Jamie Gollings, deputy research director at Social Market Foundation, said: “This, alongside banning new leasehold flats and preventing extortionate ground rents and service charges will be welcome news for private renters.”
HOW TO VOTE
You need to be registered to vote before you can vote in UK elections or referendums.
You need to show photo ID when voting in person in some elections and referendums in England, Scotland and Wales. This includes a passport or a UK driving licence.
You can vote when you’re:
- 18 years old in England and Northern Ireland
- 16 years old in Scottish Parliament and local elections (and other elections when you’re 18)
- 16 years old in Senedd Cymru (Welsh Parliament) and local elections (and other elections when you’re 18)
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