The Impending UK General Election: Financial Implications of a Potential Labour Government

Transcript

Martin Stanley  00:00

Good evening, everybody, and welcome to another webinar by Rowley Turton, which we do every couple of months on subjects which we think will interest our clients, and perhaps those who are not yet clients, but might be in the future. I have been a financial advisor of one sort or another for about 30 years, and in that time, I have seen governments come and go, and goodness knows how many prime ministers and even more Chancellors of the Exchequer. And every time there is a change, there is fevered speculation by us and people in our field about quite what this time these changes are going to bring. And it gets quite intense. But normally afterwards, we find we were completely wrong, and it dies down again. Now that’s not to say there are not important things that do change. Governments change rules a lot, especially on things like pension and investments, that affect us more than anything. But over the long term, over the last 30 years, certainly, no matter the ups and downs, I have noticed that people still pay their mortgages, bill for retirement, send their children to university, and the world continues on. And from an investment point of view, which is something that we do a lot of, we find that investments tend to keep on going up, whatever the ups and downs and trials and tribulations along the way. So in terms of what the latest changes will bring, we know there is an election very, very soon. If you are not sick of it already, you soon will be.

 

Martin Stanley  01:28

We do not know quite what is going to be around the corner, but we have got some pretty good ideas now, and some of you would like to have some of those ideas in advance. So my colleague Scott Gallacher is about to take you through what we know and what we think about the changes, and hopefully put you in a better position to think about what lies ahead.

 

Martin Stanley  01:46

Before I introduce Scott, he is a director of Rowley Turton, he is a Chartered Financial Advisor of many years standing, and he will be talking to you about the election upcoming. Before that, here is the agenda, a little bit of housekeeping. First, your cameras are off and your microphones are on mute, so don’t worry about that. There will be questions and answers at the end, and at the end of this, the recording of the webinar will be available to everybody. We will email you a copy, and at the same time, we will ask you if you have any questions you would like us to answer, and maybe invite you in for a cup of coffee and a biscuit to learn about what Rowley Turton do. So thank you for joining us today, and without further ado, I will pass over to my colleague Scott, who will take you through what we think might be happening in a couple of weeks time. Thank you very much.

 

Scott Gallacher  02:33

Cheers. Thank you, Martin. Firstly, a small confession, when we started planning this seminar, it was actually in advance of Rishi Sunak’s announcement of the election. And to be honest, we thought we would do be doing it at this time of year, but in terms of a future Labour government coming in at the end of the year or in the new year. And we are quite surprised, if you look at the polling here, Labour have been consistently above 40% gone over a year or so, and so I am quite surprised that he chose to call the election when he did. There has been a slight fall back in Labour’s polling over the last couple of days really or few days, but also that’s coincided with a fall in the Conservative own share. And to some extent, it is down to the surge of Reform and Nigel Farage’s return to frontline politics. So I think it is safe to say that Rishi Sunak’s election campaign has not gone well, and I think almost everyone would agree that, or certainly not disagree, I think, with the polling, and they say there is numerous polls, but it’s fairly consistent. So barring some amazing rabbit out of a hat in the next you know week or so, I think it is, you know, change is almost guaranteed. I think it is fair to say that we are looking at a new Labour government, which some people will welcome and some people will not. I think to start by looking at kind of governments in the sense of one of the key things, certainly from a financial planning perspective, is how governments of any colour balance the books. So there is normally five key elements that they will certainly talk about, firstly tax and spending. And we certainly see that politicians at the moment, if we look at Sunak, they will make a big deal about Labour’s tax plans and whether they make up and whether it’s going to be more tax for people. Traditionally the Conservatives are the party spending less and having less tax, and Labour are typically the party of having higher tax and higher spending, and there is a trade off whether you think which is better for you or for the country. All politicians, regardless of colour, will talk about efficiency savings and tax avoidance and benefits cheats as a way of raising money or saving money. I will be honest, I think they are kind of magical unicorns, really. That is not to say that organizations like the NHS are not inefficient. I am sure there are inefficiencies in any large organization. Equally, I am sure people do avoid tax, and I am sure that some people cheat the benefit system. But as I say, almost every politician of almost every colour will claim that there’s these magical savings to be made from attacking these areas. But if they were these fantastic savings, mostly, they would have been achieved by now. I think they are just endemic in any kind of system. And then finally, we have got economic growth, if we are looking in terms of what Labour are talking about at the moment, their policies are actually, in a sense, very Conservative, with a small c, so their tax and spending commitments, even the Institute of Fiscal Studies, have said that they are trivial in nature. So it is not a huge commitment. I think that is partly, well, I think largely a political decision on the basis that the Labour Party wants to be seen as financially prudent in order to be elected, regardless of polling results. And I think it is more akin to the Blair Government, certainly in the first few years of the Blair Government, when it committed to maintaining largely the government, the Conservative governments, or previous governments, tax and spend policies. And it is certainly not a Corbyn-esque Labour Party. So I think there is not too much scary in their manifesto on tax and spending. That said, Labour are seemingly pinning a lot of their longer term spending goals or aspirations on economic growth. And they have some good ideas behind that I think it’s fair to say. However, as I will show in a moment, I am skeptical of government’s ability to really drive economic growth. I think economic growth is, to some extent, something that happens in countries, provided that the government kind of doesn’t get too much in the way. But we will have a look at that in a moment. I have not mentioned borrowing, specifically as neither Labour or Conservatives really want to talk about borrowing more but also because with where we are in terms of debt, either party would not be viewed as financially prudent to be looking to borrow more money. That is not to say that they will not have to borrow more money, whoever wins. I think the IFS accused both Labour and Conservative parties of being a conspiracy of silence about the real state of the finances, but we will work on what we have got, and I will come on to that. So one of the things I think it is fair to point out is that despite the Conservatives traditionally being the party of lower tax we are currently in a very high tax regime. It is technically fallen down, fallen back a little bit. So we were previously at a 70 year high. It is not quite that level. It has just fallen back a little bit. Albeit the predictions from the IFS for both Labour and Conservatives, they are similar. I will admit that Labour’s are slightly higher, but there is not a huge difference in terms of the likely tax revenue as a share of GDP. And you can see from this chart, we had a low of 28% in the end of the 50s, and almost got there in the kind of early 90s, but now we’re, you know, 37% give or take. So we’re certainly in a high tax environment. So I think Labour’s potential to increase taxes is somewhat limited or constrained anyway, which might be, well, it is not good that we are in a high tax environment. That is very certain to say. But it is probably reassuring to certainly our clients, that, yeah, in our view, there is not too much higher that taxes can go. Now, I mentioned about economic growth, so one of the things we have done is sourced economic growth by party. So essentially, red lines are when the Labour Party was in charge, and essentially GDP growth. Blue lines are when the Conservative Party were in power. Now, on one hand, at a quick look at it, you might say that it is a bit better under the Conservatives than under Labour. However, when you drill down through all the numbers, it is statistically not significant. And there are three negatives here. Brown, who gets the blame for the global financial crisis, probably a bit unfairly, there is a big negative there. There is Major with the recession, when arguably, there is arguments whether he actually wanted to be in charge in that period or not. And then Wilson. The other argument, or one of the challenges, with economic growth by party, is when do you take responsibility for any negative investment in economic growth or recession stuff, and when do you take credit for success, because largely the economy grows. So one of the ways that economists, etc, look at this is by what’s called a lagging thing. So what they do is, when Labour… assume they win the next election, they will take a while for them to introduce their policies, and for those policies to have an effect on the real economy, the growth that they get the first week, month after they come in, will not be down to anything they’ve done. It will be down to what Conservatives, good or bad did previously. So the way they do this is by a lagging indication. So what you do is essentially you move the growth figures, good or bad back to the previous government, and you could do that either not at all, or maybe up to eight quarters, two years. To give an indication about average GDP growth by party. I think it is a quite good way of doing that. What you actually see, if you do that, is the economic growth, the Conservatives is fractionally more, but fundamentally it is in the same ballpark, and fundamentally it is positive. So to some extent, my interpretation of that is that no matter who’s in charge, and Labour and Conservative, generally have different policies at different you know, periods in history, it does not make a huge difference in terms of who is running the country. In that sense, I think these figures are from 1955 but if anyone actually needs the dates, I can dig that out for them. I mentioned earlier about Labour seem to be pinning a lot on economic growth. And I certainly think most people agree that economic growth has been a bit lacking in the UK recently, due to Covid and other factors. And obviously the idea of economic growth is that we grow the pie, as they will say, so there’s a bigger pie, and therefore we all get a share of that. So when it comes to funding e.g. NHS, pensions, schools, etc, potholes, then there is a bigger pie to pay for it. It is quite a sensible policy but I am questionable whether governments can really move that too much, but Labour at least have a plan I suppose. Firstly, they are talking about putting economic stability first. So talking about a charter for Budget Responsibility, essentially tasking the OBR to make sure the government sticks to certain plans. There are pros and cons to that. I think the aim is to kind of avoid a Liz Truss kind of style budget. So there are good benefits, but it can restrict governments. One of the things I do like is they talk about annual budgets rather than six monthly. Now, working in financial services, there  is an element of a six monthly budget being exciting, what is the chancellor going to do. But from a practical planning angle, for ourselves and for our clients, it is a bit of a nightmare. You know, we do not want tax rules and other benefits, etc, spending commitments changing every six months. We would rather certainty, and in business you need certainty to plan. So the intention is an annual budget at the end of the year or beginning of the year, four months before the tax year, so that businesses can plan and no corporation tax changes. I think businesses would welcome that, and certainly no increases.

 

Scott Gallacher  12:35

But that must be viewed in the knowledge that we are at relatively high corporation tax compared to recent history. So, you know, essentially, corporation tax went up. Labour are not increasing it, but they are not cutting it either. The National Wealth Fund, so investment in the country, that’s obviously hopefully a good thing, the industrial strategy Council hopefully to get businesses and unions and councils and government to work together sounds good. Planning reforms, most governments mentioned planning reforms. Bit skeptical whether this will work. They plan to build, I think another one and a half million houses and other projects. In reality, that these things tend to fall down at local level because people do not necessarily want new houses being built next to their house. If that does go through, that would obviously be good for economic growth and construction work, etc, and then making work pay. I think this is a double edged sword. They are talking about minimum wage reforms and basically removing some of the bands, which is obviously good for younger workers, they earn more. It is a cost on business, additional workers rights. Some argument about whether this is beneficial or negative in if it stops employers hiring new people by making it riskier and more expensive, so I think swings and roundabouts on that point. The other thing to look at is obviously growth. I have said it is not really too influenced by who is in charge. So what about the stock market? This is just the UK stock market, all share, I think. But essentially the fundamental trend of the stock market is it goes up. Capital is at risk, you can lose money, do not forget any of that. But actually, the party being in charge does not make too much of a difference really, the general trend is upwards. And this is another thing. This is all share from… again, I think 1983 I think it is so Conservative and Labour governments, Conservative governments win almost 5% a year versus Labour on 4% but it is still positive. None of this is negative. And there will be a million other factors, how the economy was doing at the time, and various other things. And again, whether you inherited it at a good time is people will argue it. The fundamental principle is growth is positive regardless of who is in charge. Now tax changes, I said that the Labour’s manifesto commitments and generally, most of what they are saying is very conservative, with small c in terms of tax rises. So essentially, what they have said is income tax, National Insurance, VAT (apart from private school fees), and I will mention that later, and corporation tax is fundamentally no change. That is good news, albeit some of those you might argue taxes are at a relatively high level anyway, so taxes are not coming down, but not going up. I have not looked at the fine detail, but almost certainly an element of fiscal drag, i.e throws and allowances will catch more people, which governments of both colour do, I suspect that continues. There is some question marks over other taxes. And I think it depends on where you are in the political spectrum,  I think. Labour’s manifesto is very quiet, almost silent, on capital gains tax, inheritance tax and other taxes, so they have not committed to not increasing them. That said, if you listen to Labour, whenever they are challenged on this, they do make the point that all of their spending commitments in their manifesto are fully costed, so should be achievable without tax rises. So that would imply that they do not increase these taxes. But in the real world, the future is unknown. Maybe they do not get the growth they are hoping for, because that may be a bit optimistic, and maybe you have to rise those taxes. I read a Guardian article the other day which had found an internal Labour document. It unfortunately did not publish the internal document so you could not quite see exactly what it was saying and how relevant it was, or whether it was just blue sky thinking. But some of the things that the Guardian article and that internal document looked at was increasing capital gains tax rates. There is a lot of criticism on capital gains tax in the sense that the rates are lower on capital gains than they are for income tax, so there is lots of talk of increasing those rates from 10% and 20%, or 18% and 24% on property, to put them in line with income tax rates of 20%, 40%, 45% etc. And that would raise a lot of money for the government. And arguments for and against that, obviously for our clients, that would generally be a bad thing, but it is a point to bear in mind. Inheritance tax similarly, there has been talk of removing some of the gifting provisions, in a sense. There are certain exempt assets you can own that if you own normally, after two years are exempt from inheritance tax. And so there is some argument about removing those allowances or exemptions. So again, if you have an inheritance tax problem, maybe look at planning earlier. And then other taxes: Insurance Premium Tax, Fuel Duty, other things that may or may not be specifically covered in the manifesto. They are quiet on that. That is not to say that these will increase, but there is… the Labour Party left themselves more political leeway to increase them if they needed to or wanted to do those. For investments and markets, this is again, a big concern from our clients, what might happen to the market and your investments in the event of a Labour government? The first thing to say is, to a large extent, I do not think there will be much change. The stock market generally goes up, this UK stock market, international markets, if you think about it, are probably not too concerned about the UK government change. If you are Microsoft, or Coca Cola, a change in the UK Government probably does not make much of a difference to you. So largely, I suspect there is no change, but people will be concerned about it, and importantly, it is probably priced in already. What do I mean by that? If you think about it, investors are making decisions on a daily basis about whether to buy a share or an investment or to sell that investment or just to hold it. Now, investors as a whole, obviously will make relatively informed and rational decisions on that. We have seen the polling earlier that have had Labour at 40 odd percent for at least a year. We know there is an election this year or the beginning of next year, so investors will know that it is likely that the government will change. So if the investors thought that their companies that they were buying were going to be adversely affected by that change, likely they would have sold those shares already, therefore it is in the share price. This is the thing a lot of people with investments forget, that once something is kind of known, it is normally in the share price, what stock markets and investments generally do not like is uncertainty, or sudden change. Here are some examples of that. Liz Truss’ mini budget, which was quite a radical departure from the budgets previously, that shocked the market and led to losses on equities and bonds. That was a big surprise. The hung parliament in the 2010 Cameron and Clegg from memory, again, was not really expected, causing uncertainty in who is going to be in charge, which is not good. The Brexit referendum result was not as perhaps predicted previously. There was a fall in the pound, and it has an impact. If it had gone… well, if leave had been known to be winning before, the impact would have been less, because it would have been priced in previously. Again, it is surprises and uncertainty that investments do not like. Labour winning is probably not a surprise and it is probably not uncertain. That said, if you are concerned about what might happen with the Labour government coming in, the thing certainly from an investment perspective, the things that clients normally will say to me that they worry about the pound falling, and they quote things of Labour in perhaps the 70s, when perhaps financially things did not go well. I do not think that’s likely to happen, because I think this is a Starmer/Blair type government, in a sense, not a Corbyn or a 70s Labour government. But it could happen. You never know, although I think it’s unlikely. If it was to happen, in terms of the best places to be from an investment perspective, actually most of our clients will be fine, because most of our clients have got a well balanced, diversified and certainly more often than not, is more heavily weighted in terms of international assets. So the best way to look at this is, if the pound falls because of the change of government or government policy thereafter, then if you own for example a Spanish villa, and that Spanish villa is worth €200,000, those €200,000 if you were to sell the Spanish villa because the price of the Spanish villa will not change, it will still be €200,000, that would buy more pounds, because the pound has got cheaper. In pound terms, your Spanish villa has gone up. Now, if you replace your Spanish villa with Microsoft and Coca Cola shares, again, in pound terms, they go up. So what you would expect is there is a well diversified investor with an international buyers portfolio, and you would actually profit from a falling pound. Equally, some UK larger companies that make their money primarily overseas, oil companies, etc, their profits are generally in dollars. Those dollars would buy more pounds. So you would expect the share price of those companies go up. What might be affected is more smaller companies and UK focused companies, which may be affected. They are things to think about, if you think that the pound might fall.

 

Scott Gallacher  22:02

Conversely, we have got the flip side of this. If the government finances do not go, as the Labour Party hope, and I suppose we all hope they go well, then the government may have to borrow money, and with a high debt burden, they might have to increase interest rates to encourage people to lend money to them. A higher interest rate typically leads to people investing in the UK in terms of, certainly putting their money on deposit and lending money to the UK Government, and generally leads to a strengthening of the pound. In that scenario you actually get the reverse overseas assets in pound terms would fall. UK companies that have their earnings primarily overseas would be affected. UK companies or domestically focused companies might be okay, though the rising interest rates is a bit of a conflicting issue on this. But what might do well? Retailers might do well because the cost of imports, because we have a stronger pound they will get cheaper. That makes goods and shops cheaper, hopefully things like travel companies might do well because the cost of your foreign holiday is suddenly cheaper. They might benefit from there. There is also sector specific issues. We have got, one of the Labour tax promises, I believe specifically cover a windfall tax, so tax on energy companies. All things being equal, if energy companies have to pay more tax, or UK based energy companies have to pay more tax, then the share price should in theory fall in value, or not grow as much because of the impact of that additional tax on luxury goods manufacturers, Harrods selling handbags, etc. One of the tax proposals, which should not affect many of our clients, is attacking non dons and non residents. So people that kind of are here, but not fully here, and only pay tax on UK money. And this is what Rishi Sunak’s wife got in trouble for, because she kept her non Dom status. She paid tax money in the UK, but most of her money was overseas, and was not taxed on that money in the UK in the same way that somebody who is a UK domicile and resident would be, essentially paying less UK tax. Labour Party’s proposal is to remove that, and the idea is that if that has no impact, it will not affect the likes of Harrods selling handbags, but if those people do not want to be caught by that tax and then remove themselves from the UK and take their spending from the UK, that would affect luxury goods manufacturers and retailers in the UK. Water companies, I think you would be hard pressed not to have seen horror stories about sewage going into into the rivers, seemingly on a daily basis. Various other stories on that. So again, is there increased regulation from Labour? Do they look to privatise water companies? If you have shares in water companies, does that have an impact? For railways there are also similar issues they are talking about. Great British Railways, I have not read up fully on that. But if somebody has got a query on that I can look into that. Construction will probably be one of the highlights of this, because if they are going to generally reform the planning rules and build another one and a half million houses, maybe construction companies and  companies involved in other projects do well. But as I said, that may already be priced in because people will be working. It is difficult to think, but if it is common knowledge, then to some extent it will be in the price. And again, all of that may be in the price already. For pensions, obviously as financial advisors, a lot of our work is in the either at retirement, i.e taking benefits or they’re already enjoying retirement space. And so for pensions generally, I would say it is good news I think. The state pension triple lock has been protected by Labour. This is the principle that the state pension every year will go up by the higher of: inflation, wage rises, or two and a half percent. So if there is no inflation, no wage rises, you get 2.5%. If inflation or wage rises are higher than 2.5%, you get 2.5%. This is very good for anyone on state pension, and with inflation being high over the last couple of years, anyone who is already retired has seen the benefits of that. Lifetime allowance, for those that do not know what that is, was scrapped by Jeremy Hunt earlier in the year in the spring budget. It was essentially additional taxes on your pension once you went above a certain level. The level was just over a million pounds. Jeremy Hunt scrapped it, albeit he did retain an element in terms of frozen tax free cash limit. I will mention that briefly in a moment. Labour originally were going to reintroduce it, and we have got some clients at that around about a million pound pension levels to give us some issues that has been problematic. To reintroduce it, they were needing to exempt NHS consultants, because the NHS pension scheme and the tax charges were giving them issues with recruitment and retention of consultants, and they have decided not to reintroduce it. That is good news. Tax Free cash. It is a perennial question every time there is an election. I have been through a few elections at Rowley Turton, there are always a number of clients that say, will the government… normally a Labour Government coming in they are concerned about, remove the right to 25% of your pension funds to limit or change, the £268,000 total tax free cash, and will they remove your right to take that tax free cash. There is no mention of it in the manifesto whatsoever. I think it is politically very difficult for the Labour Party to do that, because there would be uproar really. If it was introduced, there will be an element of grandfathering and protection for existing tax free cash things. To some extent, that has already been done for them anyway, with the Conservatives effectively having this 25% but capped at £268,000 and change lump sum allowances is a technical title. So I believe conservatives have already done the job. Then what I suspect is the conservatives would have frozen it anyway. But Labour will probably keep that level frozen, will probably not increase it for a long time, and effectively that will bring more money into being taxable rather than tax free. I do not think it is an immediate concern for anyone. If you are concerned about it you could look at taking tax free cash sooner rather than later. I personally think that is not necessary, but I do not know what could happen in the future. If it was my money I would not rush to do it, but I understand why some people might want to do it. Inheritance tax on pensions, that is probably the biggest area of concern. Again, not in the manifesto at all as I could see. Labour denied that what somebody called a pension death tax is party policy. But it is worth pointing out that pension funds are generally exempt from inheritance tax, and that is therefore being used as a inheritance tax planning vehicle by ourselves and lots of other financial advisors, and is generally very welcomed by our clients to pass money from one generation to another that may get worse, what we do about it is bit debatable, but there is certainly a feeling it could get worse. There are no plans to do that, as far as I know, but I do recall it was discussed previously by the Labour Party. So it is not completely off the table. Private school fees, this has been in the news a lot. How many people does it  affect? For our clients it affects a few, but not all. What Labour are talking about, and this is almost certainly going to happen, they are talking about the removal of the VAT exemption, or the imposition of 20% VAT depending which side of the political fence you are on in this particular issue. Currently, private school fees are exempt from that, and also removing the business rates relief that private schools get, both those will effectively increase the cost of private school fees. It is worth pointing out it probably does not mean there is a 20% increase in costs. Schools can reclaim some of their VAT on their some of their own costs presumably, other businesses can, so I cannot see why they would not be able to. The IFS thinks that fees might go up 15%, not 20%. That said that is still probably enough to kind of nudge the dial for some people. I sent my eldest to private school for two years, a mess up with his A levels basically. If it was 15% more… it was stingy at the price it was. 15% more may have made me reconsider. I probably still would have done it, would have made it tighter, so it certainly would have an impact. Some parents I am speaking to and certainly a lot I see in the press are looking at prepayments. You pay for next year’s fees, or even several years fees to avoid the VAT. I am not certain whether it works or not. Seems to be some debate on that, but there are risks. Finally, you might need to revisit your financial planning if your school fees are going to go up 15% and you have a few more years to pay… is that affordable? Do you need to raise more money, spend less, earn more? On the risks of prepaying, I will run through this just very quickly. This is the idea you pay for school fees early in order to forward the VAT. Firstly it might not work. We are not sure when you need to pay it by and it could be a retroactive measure. Labour could come in and say, we know what you have done, You have done it to avoid the VAT. It is not impossible that they catch anyone from the date of the election or whatever it is. Liquidity risks. Do you want large sums tied up in prepaid fees? What if you need that money? What if you are in business and a supplier defaults on a payment to you or a customer defaults. School closure. There are always schools closing now in private sector, and that maybe get worse with the challenges due to VAT. Do you really want two or three years of school fees tied up in a school that might not be there. Do you get your money back? Also, what if your circumstances change? What if the school is not right for your children, or you move? Again, there are opportunity costs, there are risks of doing it.

 

Scott Gallacher  31:44

Private medical insurance, has nothing specifically in the manifesto regarding this. But of course, Labour is the party of the NHS. I think that is fair to say. It is kind of at their core. They have got a commitment to improve the NHS in lots of ways, and that may have an impact and a benefit in terms of private medical insurance. It may mean less demand for private medicine, so you are getting treated properly. We have known some clients, friends and people who have effectively raided their savings to pay for hip operations, knee operations, etc, because they could not wait for the NHS and they did not have private medical insurance. That essentially drives up the cost of private medicine, supply and demand. If those people suddenly are in the NHS, obviously they have more money themselves, which is a bonus, but it also means there is probably less demand for private medicines, and maybe the costs of private medicine calm down a bit. Therefore, you may have lower private medical insurance premiums, which is obviously good for anyone who has private medical insurance. Alternatively, insurance premium tax is not mentioned in the manifesto. No commitment to not increase it, and if they want to come under financial pressure, maybe they increase insurance premium tax on health insurance in a similar way that they are putting VAT on private school fees. You could argue that it is a benefit for wealthy people and therefore, politically, maybe that is something they look to tax even more than they do at the moment. For business owners, I would say that Labour’s manifesto is broadly okay, neutral, maybe positive. I did not read anything that concerned me as a business owner. They claim to be pro business and the party of wealth creation. Again, Starmer’s Labour is not Corbyn’s Labour, I think that is fair to say.

 

Scott Gallacher  32:45

I think Labour has realized that it needs to be in that space to be electable. No Corporation tax changes but as I said, from a relatively high level. No increases in income tax, National Insurance, VAT, again, relatively high level, increased stability, the annual budgets, etc, to help business planning. All of that is good, and I think I would broadly welcome. Again I mentioned earlier some concerns regarding increased workers rights, not that I object to workers having decent rights. Obviously, we are a good employer and look after people. But, similar to minimum wage reforms, it might hamper businesses that are trying to grow to recruit new people or make them think twice; that may be negative in a sense of growth, which again, will not help Labour’s finances. Landlords, Labour’s charter for renters… This seems to have gone a little bit quiet. Lisa Nandy a couple of years ago, promised that within 100 days, Labour would introduce a charter for renters. Let us first say it is not massively dissimilar from Michael Gove’s rent Reform Act, which has gone by the way now with the election and everything, essentially is more red tape and cost and risk for landlords and Labour is probably not the party of landlords. I think it is fair to say, they are not the traditional match in that sense. So that is probably a factor or issue. If you are a landlord, you want to look at the market in that sense and whether it is still going to be tenable. I will say the manifesto has not mentioned this at all. It is not in there at all. But they could just say where it was previously committed to. So if it comes or goes, I do not know. Perhaps a bigger issue, or as big an issue, is this commitment or hope to build another one and a half million houses. That will, in simple terms, increase the supply of housing will put pressure on house prices and rents. So maybe that is a negative. Positive, obviously, if you are renting, not so positive if you are a landlord.

 

Scott Gallacher  33:31

Non-doms and non-residents. I mentioned that earlier, so the non-dom status is effectively being ended. So somebody like Rishi Sunak’s wife, who has now ended her non-dom status, previously she could have kept a non-dom status, paid tax only on UK money, kept money outside UK and paid less tax in effect, if you have to pay less tax by moving to the UK, you would not keep your status you would do it anyway. Similarly, they are talking about ending offshore trusts. So it is a similar principle. It is getting your money from offshore, but you are in the UK, it does not really work at all for UK resident. We are UK dom ourselves. It is a non-dom. They are non resident things, an extra 1% stamp duty on non UK residents. So this is overseas residents buying UK property. I doubt it has much impact in Leicester, but on terms of London property market, is probably a factor. In conclusion, for those of us old enough to remember Dad’s Army and Private Jones and Captain Mannering and all that stuff, Rishi perhaps, should have remembered to not skip the D-Day celebrations to help his polling. Don’t panic. Don’t pay the Labour’s tax plans, confirm, or almost anyone, are relatively, I know, benign. They do increase the overall tax take, I believe, but it is from a high base, so it is a little more. Not that anyone wants to pay more tax, I do not want to pay more tax. But it is not going from a high base to a super high base, and it is not going from a very low base to a high base. So in the real world, we do not see any immediate impact of that, I think. Equally, their spending commitments are relatively modest. It is all pinned on growth, really, in that sense, in terms of what you might want to do again, investments. I think a lot of this stuff is oversold in the sense of, is there an issue? But it makes sense to review your investment for those and well, both what assets you hold, and maybe to some extent, where the hell? Capital Gains Tax, etc, which come on, capital gains tax again, make use of allowances. I would not rush to do much more than that. But maybe if you could pay tax at 10% capital gains, you are in the old entrepreneurs relief, which is now business disposable relief, maybe that could go possibly, what some company or clients are saying is that businesses that made up to get over the line before the new government kind of gets its feet under the table and changes anything, I would not necessarily sell it just for that reason. But if we are saying anyway, maybe I would love to move it forward. Perhaps inheritance tax makes gifts earlier. Maybe look at buying exempt assets. One of the things that the government could look at attacking are primarily agricultural relief and business relief schemes. These are agricultural property, the idea that you own certain assets, and if you hold them for normally two years, are exempt from inheritance tax, and we use them a lot for clients, are very popular. There was a lot of talk about the government, Labour coming in, potentially removing them. They could do that in a number of ways. They could extend the holding period from two years to five or 10, which would make them less attractive. They could effectively ban them completely.

 

Scott Gallacher  38:24

You get no inheritance tax from that. There is couple of things they could do. They could restrict the category of things that qualify and do not qualify. Again, not certain if that would happen. If you own them now or buy them in advance of those changes maybe they would be grandfathered and protected, maybe not. But again, if you have an inheritance tax, you might want to do that. Similar thing with gifts. They might extend how long you have to give the gift, it is currently seven years, and then it is tax free generally. Labour could extend that to 10 years, 14 years. Who knows? Again, make a gift now, maybe it is on the clock, maybe it is beneficial. And what I would say is, if you have got inheritance tax wrong and you have children who have their children i.e. your grandchildren have school fees, and they are looking to prepay to avoid VAT, maybe you give them the money now, so it is on the clock for inheritance tax.

 

Scott Gallacher  39:12

Maybe that saves you more inheritance tax by doing it sooner, especially if Labour do change rules, and maybe you can prepay and avoid a VAT. So maybe there is a double win from a tax angle. How can Rowley Turton help? Hopefully we are helping you understand your own financial planning picture, which is fine calculating how much you need for the future. And that ties into gifting money to kids and grandkids and stuff like that. We work in junction with other experts for an overall financial plan and helping you navigate a complicated or complex financial world, which is likely to get more complicated, fundamentally helping you enjoy your wealth, and I suppose your children, if we are passing it forward. Martin mentioned at the start that we work with a guy called Paul Armson in terms of financial planning approaches. He has a book called Enough. Anyone who has attended if you email Martin with your home address or office address, we will drop you a copy in the post so you can see how we work. That is all. Questions and answers. Just one second. Let us see what we have.

 

Martin Stanley  40:14

Scott, thank you very much for all of that, that is a whistle-stop tour through what we think might happen with what we assume to be the new incoming Labour Government. Important to say that in the past, some incoming governments, or hopeful incoming governments, have emphasized action on the first day, a budget in the first day or the first week, but the Labour Party has said no such thing. They have emphasized, as Scott said a minute ago, stability, annual budgets, not chopping and changing. Now we do not know when the first budget or when any first changes might be, but we think they are not going to be immediate. And frankly, some of the changes we have talked about today are things which are complex and they do take time. So really, what we are doing is looking into the future a bit, and we will not know the true picture for quite a while. So just to bring that round to what might be important to you, and what we do here for our clients is that we also look into the future for clients and we emphasize personal financial planning, modeling your future, working out whether you will achieve your objectives and what your financial future may look like. We will be getting in contact with all of you over the next few days by email with a copy of the slides and the invitation to come and speak to us, have a cup of coffee and a biscuit and see if we can help you in that sense. In the meantime though, some of you will have questions about what Scott has said today, so I will pick up a few of those. Richard emailed even before we started the presentation, in actual fact, to ask something which I think Scott has already dealt with, which is the 25% you can take of your pension, it is a tax free lump sum which is loved by a lot of people. It is a great big lump sum of money as soon as you retire. Will Labour remove that? And should I take the money immediately before Labour can take it away from me? Just to paraphrase what Scott said five minutes ago, he said that although that is a possibility, he thought it was unlikely, at least in the short term. And what we think is most likely is that Labour will leave it in place, but just let it erode away by keeping the limits where they are as inflation and values go up. We cannot be sure, but it will be a very hot political potato, and would create an awful lot of bad feeling in the public, so probably that is not one of the key things to be concerned about. I hope that is helpful Richard, if not, please get in touch and we can talk about it some more. A couple other questions here. Elaine has asked something we have not mentioned yet, and perhaps you could speak about this, Scott, which is an important part of government and public policy. For years, something’s been kicked around. The political football is expenses for long term care, which can strip away a lot of our wealth in our older years. Do we know what an incoming Labour Government, if we get one of course, has to say about that?

 

Scott Gallacher  42:32

Good question. No I do not actually, I did not come across that in the manifesto. I suspect the reality is that it will be kicked further down the road. I remember spending a lot of time around 2010 I think it was writing about Gordon Brown’s national care service. It was equivalent to the NHS, but for care where the government would pay for it. I think, the reality is, that is definitely a political hot potato. The government will not want to pay for people’s care, and financially, I think they are going to struggle. And of course, we do not want to pay for care for our parents in terms of them losing their house. But fundamentally, the money either comes from the taxpayer or the people with the assets. Those taxpayers do not want to pay it. I will be honest, I would be surprised if it is really tackled, I do not know what the policy is, but I suspect it will just be kicked further down the road, which does not help anybody. I think Ed Davey and the Lib Dems, to be fair, they have actually got a proper policy on it. Whether it works or not it’s probably also debatable, but I cannot see the Lib Dems winning, so I think we will still be talking about this in the future.

 

Martin Stanley  44:19

Maybe we will talk about that at a further seminar, maybe we will address it again. Another question, this is something perhaps we might know a little bit more, which is… Craig says that he is a small business owner, and he pays himself and his wife through a combination of salary and dividends. He says, some people regard this as on the edge of tax planning, but I think it is just common sense. I think he means of paying himself dividends rather than salary. Is there any suggestion that small business owners who pay themselves in this tax efficient way might see their tax going up.

 

Scott Gallacher  44:55

Again great question. I did look at detail in this, in the manifesto actually, and again. Despite in parts Labour claiming to be pro business and the party of wealth creation, which is obviously good, I struggle to find a specific reference to the word small business anywhere in their 130 page manifesto. So it seems to be overlooked. Business just seems to be business, so it is a grey area. They have said no increases in income tax, but we have known that before. I think the Conservatives previously said no increases in income tax and increased dividends. So it is a tax on income, savings of income, and previously have had the same problem with National Insurance. There is no proposal to increase it, it is in that grey area of is it covered by the no increase to income tax? Possibly. Or is it in the other taxes that they have not committed to. I think a lot would be hinging on. I do not think they are going to increase it tomorrow or on July 5th, but I certainly think they will reserve the option to increase it if they need to, because it is in this grey area. If they increase it, it will be difficult to argue that it was specifically excluded by their manifesto. But it is very silent on that point. It did not say that income tax, including dividend tax, would not be increased. And dividend tax, I could not find a reference to it at all. So it is potentially on the table.

 

45:59

Thank you, Scott. One of our clients, Dave, makes the point that he and his wife like to be tax savvy, and they make the maximum use of their ISA allowances each year because it is one of the most common ways of sheltering money from taxes. Is it likely to be in jeopardy, either the existing money or future contributions to save tax in this way?

 

Scott Gallacher  46:43

Well, it is always possible, it is not specifically protected by the manifesto, that I could see. In fact, the Conservatives were going the other way around with their British ISA that was effectively increasing the ISA limit to 25,000, I am pretty sure Labour are not doing that, I have always been surprised at the ISA allowance and will we make full use of it for our clients? I agree, if you are not making full use of it and you have the money, then you are missing a trick and but I have always been surprised at how generous it is, and I do think that the tax impact, especially now interest rates, are higher, is. It is an area where I would not be surprised if a Labour government eventually looked at it. Again, it is one of the things that politically is quite difficult to attack, although it was done before, when they changed dividend tax rules. So I do not think it’s off the table, but I think the view is to put your money into ISAs whilst you can, in the hope that if they were attacked, that any money in there might be protected. That is certainly one of the easy wins, to just reduce the ISA allowance moving forward, which is less politically damaging because you have not hit anyone who already has one. You are only hitting people paying more into one in the future. And typically, how government policy works is to not annoy the people who have already done something and to go after people that might do it in the future, on the grounds they have not already done it so they cannot really complain.

 

Martin Stanley  48:03

Thank you, Scott. That is interesting, and that aspect of whether rules will be retrospective, in fact people who have done actions in the past is an important one, and it is something important to say that normally, when there are changes in financial planning, especially in pensions, which Scott and I have seen over many years, normally there are protections to protect people who have taken action in good faith in the past, transitional regimes they are normally referred to as. So when we talk about changes, if you already hace things in place, there is a good chance that the rules might not affect you. Now I am conscious it is almost 10 to, the football starts in 10 minutes, so many of you will be gearing up with that. I think we have time for one more question. Matthew asked regarding pensions, is there a proposed change to the maximum amount that can be contributed to a pension per tax year? Currently, the limit is £60,000 each. Have we got any information on that? Scott, I wonder.

 

Scott Gallacher  48:54

No, I did not see anything on that. I think the £60,000 from memory was a temporary limit. I believe it was brought in for this year and maybe next year. So logically, you would expect that will be allowed to naturally kind of drop back to £40,000. It is worth pointing out that even on the £40,000 limit, this principle of fiscal drag i.e. allowances are frozen or not re-rated for inflation, has an impact. If you think about it, we had about 20% inflation cumulatively over the last couple of years. It is stinging when you weigh it up. Effectively, in order to have kept pace with the £40,000 limit of a few years ago, that would now need to be almost £50,000 so okay, the £60,000 is ahead, but if it then drops back to £40,000, that in real terms, is a cut of nearly £10,000. So that is an element where the pension rules will go,  that high inflation we had for a few years, that fiscal drag is actually hugely beneficial for the government’s coffers. And I believe that fiscal drag will be used more than anything else.

 

Martin Stanley  48:57

Thank you very much Scott, that is interesting. Now, I we are to the end of our questions now. So it only remains me to thank everybody who attended today, who watched us, to say that we would like to see more of you. As I said before, we will be getting in touch over the next few days and hopefully make contact with a few people we have not met before. We are very glad to help and to talk to you about your own financial planning, whatever the government today does. So thank you very much, and perhaps we will see you again the next time we present one of these seminars. Until then, thank you again. Bye, bye.

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