The election is finally upon us. Truth be told, I can’t wait for the vote to be over. I have had enough of political ramblings, back and fourth verbal assaults by parties and everyone on my social feed thinking they are political experts.
The aim of this post is to give a quick rundown of the personal finance changes each party is proposing. Whilst different parties have put forward different proposals, what I will say is no political party is going to change your personal circumstance or your position in life. Only you have the ability to make your life better. It always annoys me when people blame their struggles on others. They make claims like the wrong political party is in power or the economy is bad or its so hard to get a job. But I bet you that if the thing these people are complaining about changes for the better, they will find something else to complain about. They will never admit that they themselves are the problem. But I guess blaming others is a way to not feel to bad about themselves.
I will keep the personal finance and investment effects of the various parties short and concise in order not to ramble on and go off tangent.
- Increase the amount you can earn tax free – the personal allowance – to £12,500 by 2020
- Increase the higher rate tax threshold to £50,000 by 2020
- Increase the Living wage – currently set at £7.50 per hour – to 60% of median earnings by 2020
- Corporation Tax will be reduced to 17% benefiting the self employed and people who own shares in businesses.
- Replace the state pension ‘triple-lock’ with a ‘double-lock’ from 2020
- Introduce a £100,000 capital floor for people paying social care costs
- Increase the inheritance tax threshold to £1 million for married couples and civil partners, as well as a £175,000 transferable allowance for these groups.
- Cost of commute: Those commuting to work via rail could be set to benefit, with the new government pledging to cap regulated fares at the rate of inflation over the next five years.
- Benefits for married couples: In a fairly recent policy decision, married couples will maintain the right to transfer just over £1,000 to their spouse or civil partner. And this will continue to rise in line with increases in the Personal Allowance.
- No increase in income tax for those earning below £80,000
- Earnings above £80,000 taxed at 45%; earnings above £123,000 taxed at 50%
- Hiking the corporation tax rate to 26% to the detriment of the self employed or anyone owning shares in companies.
- Keep the Help to Buy shared ownership scheme in place until 2027
- Replace council tax with land value tax – the effects of this is the average person will pay 3 times more tax than they currently pay
- Increase the living wage to £10 an hour by 2020
- Reduce the inheritance tax threshold to £650,000
- Introduce a care cost cap, increase the asset threshold below which people are entitled to state support, and provide free end of life care
- Income tax will rise 1p in every pound for every tax payer. (Essentially a 1% increase)
- Increase corporation tax to 20%
- Reduce tax-free capital gains threshold
- Reduce Inheritance Tax threshold
- Introduction of a rent to own scheme which would allow rent payments to build up like a mortgage until tenants own their own home after 30 years.
The above are the main personal finance pasts of the manifesto’s for each part. Please note that politicians always try to and sweet talk the public so there is no guarantee what they say will come to pass.
As a person with significant – significant to my total wealth at least – stock market exposure, this article would not be complete without an analysis of what would happen to stocks (and the Pound) in the event of Conservative or Labour win. Please note that I purely giving my opinion in this section. I, or anyone else for that matter, do not have a crystal ball to forecast where the Pound or the stock market will go. This type of speculation is a fools game. As a recent example, many respected analysts expected the market to crash if Donald Trump won the U.S. election. Guess what, the stock market actually soared on the day the Donald was announced as the new leader of the free world.
In order to understand what will happen to the stock market after the election, we need to look at the Pound (£). Outside of earnings season, the UK stock market indices – particularly the FTSE 100 with high overseas exposure – has more or less tracked the Pound. When the Pound strengthens the FTSE 100 slightly decreases and when the Pound Weakens the FTSE 100 increases. Just look at the weeks after Brexit to see an extreme example of this.
At present the markets are pricing in a conservative majority. That is why the Pound has rallied close to 1.30 to the USD since the election was called. The FTSE250 has also rallied as domestic facing businesses will benefit from a tory majority. Incidentally the FTSE 100 has also rallied in this time – partly because of high earnings during the reporting period over the last month and also because the main index has followed its global market peers to new highs.
With markets currently pricing a Tory majority, I don’t think there will be much of an effect on the pound or the stock market if they do win. Maybe they will both appreciate a little but besides that it is hard to see what will happen. Expect the majority of volatility to happen during Brexit negotiations.
If on the other hand the tories win but lose seats or even have to form coalition, it is really hard to tell what will happen. This is because the markets might be relived that there will no longer be a hard Brexit which May cause the Pound to rise.
Looking at the opposite end of the spectrum, if Labour somehow get into power, expect the Pound to fall sharply, The FTSE 100 to soar and the FTSE250 to drop. FTSE 250 companies will be doubly hit, firstly by the falling pound leading to cost push inflation and second higher corporate taxes leading to lower profits on both accounts. Also expect shares in train operators like Go-Ahead group and Stagecoach to tank. On the other hand, I would expect shares in companies that labour plans to nationalise to rise as explained in this article – provided Labour pay existing shareholders fair market value.
It is also important to note that Labour’s manifesto also has implications for the gambling sector, as it includes a pledge to reduce the maximum stake on fixed odds betting terminal (FOBT) gaming machines in UK shops from £100 to £2. Such a move would be unhelpful for both Ladbrokes Coral and William Hill.
Personally I do not invest based on ‘expected news’. I don’t like to gamble on future events such as an election. I feel that people who own shares in good-quality companies with a decent mix of local and overseas earnings will do well regardless of the decision of the vote this week.
I will leave you with a great quote from Winston Churchill.
The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries. Winton Churchill